Korea Zinc Treasury Share Suit: Young Poong Loses in First Instance... "Reasonable Judgment" vs. "Immediate Appeal"

Court Dismisses Damages Claim Against 10 Directors
Korea Zinc: "Large Lawsuits Chill Business Judgment"
Young Poong and MBK: "Overlooked Debt Burden and Harm to Shareholder Value"

In a shareholder derivative lawsuit filed by Young Poong against Korea Zinc’s board of directors, alleging that the company suffered losses from its tender offer for treasury shares, a court of first instance ruled that the directors were not liable for damages. Korea Zinc said the ruling recognized the board’s reasonable business judgment and called for the lawsuit to be dropped, while Young Poong and MBK Partners said they would appeal, arguing that the ruling overlooked the company’s financial burden and harm to shareholders.

The Seoul Central District Court’s Civil Division 30, presided over by Judge Kim Seok-beom, on October 22 dismissed in full the claims in a shareholder derivative lawsuit brought by Young Poong against 10 Korea Zinc directors, including Chairman Choi Yun-beom, seeking approximately KRW 837 billion. The court also ordered Young Poong to pay the litigation costs. A shareholder derivative lawsuit allows shareholders to hold directors accountable on behalf of a company; any damages recovered, even if the plaintiffs prevail, go to the company.

The central issue in the lawsuit was whether Korea Zinc’s board had caused harm to the company when it decided, during a management control dispute in 2024, to make a tender offer for its treasury shares at KRW 890,000 per share. Young Poong argued that the high offer price had caused losses to the company. It initially sought KRW 673.2 billion in November of that year, then later increased the amount claimed to approximately KRW 837 billion.

The court found that the board had reviewed external legal advice and court injunction rulings, among other factors, and had considered the tender offer price and financing plans before making its decision. Since the decision was not manifestly unreasonable, the court said, it could not be found to have violated the directors’ duties of care and loyalty. The court also rejected claims that the funding used to acquire the treasury shares violated the Commercial Act or the company’s articles of incorporation.

In a statement on October 22, Korea Zinc said the ruling reflected the court’s respect for the board’s reasonable business judgment in protecting the interests of the company and its shareholders. The company also highlighted that, following the dismissal of an earlier injunction seeking to halt the tender offer for treasury shares, the directors had also been found not liable in the main lawsuit.

Korea Zinc argued that seeking large damages from individual directors could discourage independent decision-making and normal business activities. It said the time and costs of defending against the lawsuit, as well as the financial and psychological burdens, could lead directors to delay or avoid decisions needed for the company’s medium- and long-term strategy.

The company also said it should focus on projects that increase corporate value, such as strengthening critical mineral supply chains and building a smelter in the United States, rather than expending resources on management control disputes and legal battles.

A Korea Zinc official said, "MBK and Young Poong must stop flooding us with indiscriminate lawsuits that obstruct our normal business activities and undermine our corporate value in pursuit of a 'hostile M&A.'"

Young Poong and MBK, by contrast, countered that the ruling had not sufficiently considered the financial impact of the tender offer for treasury shares. They said, "By focusing solely on directors’ broad discretion in management and formal compliance with procedures, the court overlooked the substantial harm the tender offer for treasury shares caused to the company’s financial soundness and shareholder value," adding that they would appeal immediately.

Young Poong and MBK claimed that Korea Zinc’s board had raised more than KRW 1.6 trillion in debt to pursue a tender offer for treasury shares worth more than KRW 2 trillion, imposing a financial burden on the company to maintain Chairman Choi’s control. They reiterated their claim that the share buyback caused the company losses of more than KRW 830 billion.

They also took issue with a public offering of new shares that Korea Zinc pursued after the tender offer for treasury shares but later withdrew. Korea Zinc announced plans for a public offering worth approximately KRW 2.5 trillion on October 30, 2024, but withdrew the plan on November 13. Young Poong and MBK argued that the move was an attempt to shift to ordinary shareholders the burden of repaying debt incurred to buy back the shares.

Young Poong and MBK said, "Directors’ discretion in making business judgments is entitled to legal protection only when exercised faithfully in the interests of the company and all its shareholders." They added, "We will thoroughly establish in the higher court the illegality of the tender offer for treasury shares in this case and the directors’ breach of their duty of care."

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