Supreme Court: Korea Zinc’s Restriction of Young Poong’s Voting Rights at Special Shareholders’ Meeting Last January Was Unlawful

SMC Not a "Subsidiary" of Korea Zinc Under Commercial Law

"Past Cross-Shareholding Voting Rights Restriction Invalid"

Korea Zinc’s use of its Australian affiliate, Sun Metals Corporation (SMC), to restrict the voting rights of its largest shareholder, Young Poong, at last January’s general shareholders’ meeting, has been ruled unlawful by the Supreme Court.

According to legal sources on August 31, the Supreme Court upheld the lower court’s ruling on August 28 that SMC cannot be considered a subsidiary of Korea Zinc under commercial law in the case concerning the restriction of voting rights between Korea Zinc and Young Poong. Because SMC is not a subsidiary of Korea Zinc, the principle of "cross-shareholding restriction" under the Commercial Act cannot be applied to limit Young Poong’s voting rights.

Article 369, Paragraph 3 of the Korean Commercial Act stipulates that if a company, its parent company, or a subsidiary holds more than one-tenth of the total issued shares of another company, any shares in the company or parent company held by that other company shall not have voting rights.

Choi Yun Beom, chairman of Korea Zinc, who has been embroiled in a management rights dispute with Young Poong and MBK Partners, purchased a 10.33 percent stake in Young Poong via Korea Zinc’s overseas affiliate SMC just prior to a special shareholders’ meeting in January last year, in order to make use of this clause. Subsequently, Korea Zinc claimed that its “subsidiary” SMC held over 10 percent of Young Poong, and thus, under the law, restricted the voting rights of Young Poong’s 25.42 percent stake in Korea Zinc. The Supreme Court’s latest decision invalidates this action by rejecting the key premise put forth by Korea Zinc—that SMC is its subsidiary.

This ruling also has implications for the ongoing case under review by the Fair Trade Commission regarding Korea Zinc’s use of overseas affiliates in forming a circular shareholding structure. The Fair Trade Commission has reportedly completed a review report on whether Korea Zinc’s establishment of a circular shareholding structure through overseas affiliates such as SMC and Sun Metals Holdings (SMH) constitutes a violation of the Fair Trade Act, and is preparing for a plenary session review.

The Young Poong and MBK Partners side said, “This Supreme Court decision will be an important consideration in the Fair Trade Commission’s review of whether overseas affiliates were used as indirect channels to undermine domestic legal order and shareholder rights,” adding, “It has become clear that at the upcoming Korea Zinc special shareholders’ meeting on September 9, the need to appoint an independent audit committee member separate from management has grown.”

Korea Zinc, however, countered by calling these claims “groundless.” The company asserted that the current Korea Zinc board, formed at the regular shareholders’ meeting in March last year, means the Supreme Court’s recent injunction regarding the special shareholders’ meeting in January last year does not affect the legitimacy or control structure of its current management system.

A Korea Zinc spokesperson commented, “This Supreme Court ruling is a separate matter from what the Fair Trade Commission is reviewing. In a previous injunction case related to the regular shareholders’ meeting, the Supreme Court found that the acquisition of Young Poong shares using SMH and SMC could not be considered a violation of the Fair Trade Act. Forcibly linking this latest Supreme Court decision to any alleged breach of the Fair Trade Act is merely an attempt by MBK Partners and Young Poong to bolster their hostile M&A argument,” the spokesperson criticized.

This content was produced with the assistance of AI translation services.