"Stop Waste and Loss"…Minority Shareholders Enter Management Dispute

[Asia Economy Reporter Koh Hyung-kwang] Recently, disputes between minority shareholders and management have been occurring one after another in the KOSDAQ market. As shareholder value has been damaged due to consecutive losses and reckless management, minority shareholders have declared their participation in management by directly pushing for the replacement of executives. Amid growing calls for strengthening minority shareholder rights, attention is focused on what results the David and Goliath confrontation will bring.

According to the financial investment industry on the 2nd, Mason Capital, a KOSDAQ specialized credit finance company, is currently experiencing intensified conflict between the minority shareholder coalition and management. The minority shareholder coalition claimed that the current management, which has failed to escape three consecutive years of losses due to reckless management, is problematic. Mason Capital recorded an operating loss of 7 billion KRW and a net loss of 4.7 billion KRW last year, becoming a company with three consecutive years of losses. According to KOSDAQ market regulations, if a company records operating losses for four consecutive years, it is designated as a management item, and if it records operating losses for five consecutive years, it becomes grounds for delisting.

Unable to endure any longer, the minority shareholder coalition recently made a shareholder proposal recommending four inside directors and two outside directors as new director candidates. When the company refused to accept this, they filed a provisional injunction lawsuit to submit the agenda, and it is reported that the court accepted it. A vote battle over the replacement of management is expected to take place at the regular shareholders' meeting scheduled for the end of this month. As of the end of last year, Mason Capital's largest shareholder and related parties hold 36.08% of the shares. Minority shareholders hold 52.90%, and the minority shareholder coalition is known to have secured more than about 30% of the shares. They plan to secure more than 50% of the shares remaining until the shareholders' meeting and proceed with restructuring the board of directors.

Minority shareholders of Samyoung ENC, a ship navigation equipment company, also took collective action urging the company to normalize management. Samyoung ENC newly organized its board of directors in April and issued convertible bonds (CB) worth 10 billion KRW, including a call option clause, with stock conversion scheduled for January next year. The problem is that according to the call option clause, the number of convertible shares increases to 1.99 million shares, and 60% of these will be transferred to a third party designated by the board of directors, threatening management rights, according to minority shareholders. The minority shareholders recently demanded the cancellation of the call option related to the issued convertible bonds and the voluntary resignation of the new board of directors composed of personnel lacking expertise.

Minority shareholders of Hanp, a printing specialist company, recently won a victory in a dispute with management. Minority shareholders claimed that since early this year, the existing management has consistently shown irresponsible attitudes, receiving tens of billions of KRW in performance bonuses despite suffering huge losses due to failures in several businesses, and demanded the replacement of management, opposing the company. Until just before the shareholders' meeting at the end of last month, the existing management held about 25% of the shares, and the minority shareholders held about 10% of the proxy shares. However, just a few days before the vote, a large number of proxy shares were gathered, and on the day of the shareholders' meeting, directors proposed by minority shareholders were appointed as new management, effectively concluding as a victory for minority shareholders.

The number of minority shareholders filing lawsuits against companies is also increasing. In April, minority shareholders of Medytox, whose product approval for 'Medytox Injection' was announced to be canceled by the Ministry of Food and Drug Safety, claimed that the company repeatedly disclosed false information related to Medytox Injection and filed a damages lawsuit against key executives of the company.