Court: "Korea Zinc Blocked Young Poong's Voting Rights; Annual Meeting Resolutions Annulled"... Korea Zinc: "Immediate Appeal"

Board appointments and other resolutions passed with Young Poong's voting rights restricted to be annulled

Young Poong: "Unlawful deprivation of voting rights has been overturned"

Korea Zinc: "Contrary to Supreme Court ruling"... to contest the case on appeal

A first-instance court has ruled that resolutions passed at Korea Zinc's annual shareholders' meeting last year, with its largest shareholder Young Poong's voting rights restricted, should be annulled. Korea Zinc said it would immediately appeal, sending the legal battle between the two sides to a higher court.

Korea Zinc CI.

The Seoul Central District Court's Civil Division 29 (Presiding Judge Go Seungil) ruled in favor of the plaintiffs on the 12th in a lawsuit filed by Young Poong and MBK Partners against Korea Zinc seeking to annul the shareholders' meeting resolutions. The resolutions subject to cancellation include setting a 19-member cap on the board at the annual shareholders' meeting on March 28, 2025, and appointing five directors backed by Chairman Choi Yunbeom.

The court said, "We did not accept the legal arguments concerning the requirements for establishing cross-shareholding in this case," but ruled that "a company cannot restrict existing shareholders' voting rights by applying the cross-shareholding rule for the purpose of defending management control." However, the court did not explain its specific reasons for the ruling in court, so it will be necessary to review the written judgment to determine which of Korea Zinc's actions were at issue.

The Commercial Act restricts a company's voting rights in shares of another company if that other company, or its subsidiary, holds more than 10% of its shares. Ahead of last year's annual shareholders' meeting, Korea Zinc arranged for its Australian subsidiary, Sun Metals Holdings (SMH), to acquire more than 10% of Young Poong's shares, creating a cross-shareholding relationship. On that basis, it blocked the voting rights attached to Young Poong's 25.42% stake in Korea Zinc.

As a result, the voting rights of the Young Poong-MBK alliance fell from 40.97% to 15.55%. Proposals backed by Chairman Choi's side, which held a 34.35% stake, including the proposal to cap the number of directors, passed. The board was then composed of 11 directors backed by Choi's side and four backed by Young Poong and MBK. The cap thwarted Young Poong's attempt to appoint more directors and secure a majority on the board despite holding a larger stake.

In a statement, Young Poong said, "The court confirmed that the actions of Director Choi Yunbeom and Korea Zinc's management in using overseas affiliates to create a cross-shareholding structure and arbitrarily stripping the largest shareholder of its voting rights to protect management control cannot be justified." It said the ruling followed the Supreme Court's decision in late August that the restriction of voting rights at the January extraordinary shareholders' meeting last year was unlawful, and that the resolutions passed at the annual meeting had also been annulled. Young Poong called on Chairman Choi and the management to apologize to shareholders.

Korea Zinc countered that the ruling conflicts with existing Supreme Court precedents. In an injunction case filed by Young Poong seeking to exercise its voting rights ahead of the annual shareholders' meeting, the court held that the cross-shareholding provision "must be applied objectively and uniformly, and whether voting rights are restricted cannot be determined differently depending on the specific circumstances by taking into account subjective intent in forming a cross-shareholding relationship." The decision was finalized by the Supreme Court in April this year. Korea Zinc said that higher-court review was essential because the first-instance ruling, which found that restricting voting rights was unlawful on the grounds that it was intended to defend management control, ran counter to that Supreme Court decision.

Korea Zinc plans to explain the legal issues in the first-instance ruling during the appeal, focusing on the purpose of the laws governing cross-shareholdings and the requirements for their application. It criticized MBK and Young Poong, saying that since launching a hostile merger and acquisition (M&A) bid in September 2024, they have repeatedly raised allegations, waged public opinion campaigns, and pursued litigation, negatively affecting the company's management stability and corporate value.

This ruling carries greater weight because it targets the resolutions passed at the annual shareholders' meeting that underpin Korea Zinc's current management structure. Whenever rulings related to the extraordinary shareholders' meeting in January last year were issued, Korea Zinc had emphasized that the current management structure was established through the resolutions passed at the annual shareholders' meeting in March and that its governance would therefore not be affected.

However, it could take two to three years for the ruling to be finalized by the Supreme Court, so its immediate impact on the balance of management control is expected to be limited. Some observers say that if the ruling is finalized, the cap on the number of directors would lose effect, potentially giving Young Poong and MBK, which together hold a larger stake, an advantage in gaining seats on the board.

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