Young Poong Loses First Trial in Shareholder Derivative Lawsuit Against Korea Zinc

Court: "Korea Zinc's Tender Offer for Treasury Shares Did Not Breach Directors' Duties"

Young Poong, the largest shareholder of Korea Zinc, filed a shareholder derivative lawsuit seeking more than KRW 670 billion in damages against Chairman Choi Yun-beom and other directors who approved a self-tender offer to counter Young Poong's tender offer. However, it lost the case in the first trial.

Seoul Central District Court in Seocho-gu, Seoul. Yonhap News Agency.

The Seoul Central District Court's Civil Division 30 (Presiding Judge Kim Seok-beom) dismissed all claims brought by Young Poong against 10 Korea Zinc directors, including Chairman Choi, on October 22.

The court began from the premise that directors have discretion in making business decisions. It said directors are not liable for damages if they have sufficiently reviewed information that could reasonably be obtained without violating laws and regulations. The same applies when a decision made in the belief that it serves the company's best interests is not manifestly unreasonable, the court said.

The court found that Korea Zinc's directors viewed Young Poong's tender offer as a threat to the company and complied with the statutory procedures and restrictions governing the acquisition of treasury shares. After reviewing external legal advice and a court injunction decision, the directors made their decision on the basis of a price set at a certain premium and a financing plan. The court found that this decision was not manifestly unreasonable. It rejected Young Poong's claim that the tender offer was intended to preserve the management positions of Chairman Choi and other executives.

The court also rejected arguments concerning the funding source for the acquisition. Young Poong argued that using a specific-purpose voluntary reserve established by a shareholders' meeting resolution to acquire treasury shares violated the Commercial Act. The court found that the Commercial Act provision setting a limit on the acquisition price restricts only the total amount, and that it was therefore not possible to determine whether the law had been violated by examining which reserve item was used as the funding source.

In November 2024, Young Poong and MBK Partners, which had sought to acquire control of Korea Zinc, filed the lawsuit, alleging that Korea Zinc's directors had failed to fulfill their duty of care and caused the company losses of more than KRW 673.2 billion and KRW 9.9 million. Amid a management control dispute, Korea Zinc's board had acquired 2,040,030 treasury shares through a tender offer at KRW 890,000 per share, even though the shares were trading at about KRW 560,000 at the time.

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