Youngpoong, MBK Lose First Round of Korea Zinc Shareholder Suit, Say "We’ll Appeal Immediately"

"Overlooked tangible harm by prioritizing management discretion"

Youngpoong and MBK Partners, which lost the first trial in a shareholder derivative lawsuit against Korea Zinc's board of directors, said on Oct. 22 that they "regret the ruling" and would immediately appeal.

The 30th Civil Division of the Seoul Central District Court issued its first-instance ruling that day in a damages lawsuit filed by Youngpoong against 10 directors, including Korea Zinc Chairman Choi Yoon-beom.

Youngpoong had filed the lawsuit, claiming that during a management-control dispute, Korea Zinc conducted a tender offer to buy back its own shares at 890,000 won per share, above the market price at the time, causing the company losses worth 673.2 billion won.

The court ruled in Korea Zinc's favor, saying the board had reached its decision after reviewing legal advice and an application for an injunction, and that the decision could not be considered a breach of the duty of care or duty of loyalty so long as it was not manifestly unreasonable.

In a statement, Youngpoong and MBK criticized the first-instance ruling, saying it "overlooked the severe and tangible harm the tender offer caused to the company's financial soundness and shareholder value, prioritizing the broad discretion granted to directors in management decisions and mere compliance with formal procedures."

The two companies claimed that Korea Zinc borrowed more than 1.6 trillion won to fund a tender offer worth about 2 trillion won. As a result, they said, the company shifted from a "net cash" position, in which it held more cash than debt, to a "net debt" position, in which its debt exceeded its cash holdings.

They also claimed that Korea Zinc "caused the company actual losses of more than 830 billion won by purchasing its own shares at 890,000 won per share." This figure was presented in the statement and is separate from the 673.2 billion won sought in the lawsuit.

Youngpoong and MBK also took issue with a subsequent public offering of new shares worth around 2 trillion won. A public offering raises funds by issuing new shares to an unspecified number of investors.

The two companies claimed that "the attempt to conduct a public offering that sought to shift the enormous borrowing burden incurred during the tender offer onto ordinary shareholders demonstrates the impropriety of the tender offer in this case."

They added that investigations by law enforcement authorities are underway into allegations that Korea Zinc prepared a share offering while the tender offer was in progress but did not inform the market, including allegations of unfair trading under the Capital Markets Act.

They said, "Directors' discretion in making management decisions is entitled to legal protection only when exercised faithfully in the interests of the company and all its shareholders," adding, "We will pursue to the end the legal and financial accountability of inside director Choi Yoon-beom, his management team, and the other directors for turning the company into a personal piggy bank and undermining shareholder value."

They also stressed, "At the higher court, we will thoroughly establish the illegality of the tender offer for the company's own shares in this case and the board's breach of its duty of care, correct the damage to Korea Zinc's corporate value, and ensure the restoration of the shareholder rights that have been violated."

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