Youngpoong Co., Ltd., the largest shareholder of Korea Zinc, has filed a provisional injunction application with the Seoul Central District Court to inspect and copy Korea Zinc’s accounting books and related documents. While jointly launching a public tender offer for Korea Zinc shares with MBK Partners to solidify management control, Youngpoong also intends to thoroughly investigate the issues and suspicions raised against Chairman Choi Yoon-beom, the management agent who breached the spirit of partnership.
On the 13th, Youngpoong stated, “Since assuming the position of CEO of Korea Zinc, Chairman Choi Yoon-beom has allegedly engaged in actions that violate the spirit of partnership established by Youngpoong Group’s co-founders, breached relevant laws including the Commercial Act, and violated the duty of care, thereby harming the interests of Korea Zinc shareholders. We believe it is necessary to verify the existence of illegal acts and take legal action to protect the interests of all shareholders. Accordingly, based on shareholder rights stipulated in Article 466 of the Commercial Act, we are proceeding with the provisional injunction application to inspect and copy the accounting books and related documents.”
Youngpoong cited five main reasons for requesting the inspection and copying of Korea Zinc’s accounting books and documents.
⑴ Allegations of breach of fiduciary duty related to private equity fund investments managed by One Asia Partners
Major decisions such as mergers, splits, sales, or significant investments require board resolutions. However, suspicions have been raised that approximately KRW 604 billion of Korea Zinc’s funds were invested in One Asia Partners, established in 2019, without board approval.
Youngpoong stated, “It is problematic that Korea Zinc is almost the sole investor in most funds managed by One Asia Partners. Moreover, investments were made in companies unrelated to Korea Zinc’s core business, such as a drama and film production company (Acmeedia), a real estate management company (Jeongseok Enterprise), and a travel product platform company (Tide Square). Each fund reportedly incurred investment losses ranging from several billion to hundreds of billions of KRW. Additionally, the CEO of the management firm, Ji Chang-bae, who has never been verified in the private equity industry, is a close middle school friend of Chairman Choi Yoon-beom. Many suspicions have been raised, so we need to inspect the accounting books to verify whether the directors fulfilled their duty of care.”
⑵ Allegations of involvement in SM Entertainment stock price manipulation
Among the funds managed by One Asia Partners, approximately KRW 100 billion of Korea Zinc’s funds were invested in Habana No.1, which was directly used for high-price purchases and price manipulation of SM Entertainment shares.
Youngpoong explained, “Considering the close relationship between Chairman Choi Yoon-beom and Ji Chang-bae, the proximity between the start of HYBE’s tender offer (February 10, 2023) and Korea Zinc’s investment (February 15, 2023), the commencement of SM Entertainment price manipulation from February 16, 2023, the day after Korea Zinc’s investment, and the fact that Habana No.1 is effectively a Korea Zinc sole fund with a 99.82% stake, it is highly suspected that Chairman Choi and Korea Zinc’s management were aware in advance of how the urgently invested funds would be used. Therefore, there is a legitimate reason to request inspection and copying of accounting books and documents related to the Habana No.1 private equity fund investment.”
⑶ Allegations of breach of duty of care related to investment in Igneo Holdings
Korea Zinc acquired Igneo Holdings, LLC, which was in a state of complete capital erosion with a total capital of negative KRW 1.873 billion as of the end of December 2021, through its U.S. subsidiary Pedalpoint Holdings, LLC, by investing a total of KRW 580 billion in two rounds in July and November 2022. However, no specific valuation details were provided at the time.
While peer companies in the electronic waste recycling sector traded at 11 to 12 times sales, Igneo Holdings was acquired at a price 200 times its sales of KRW 2.9 billion. Igneo recorded net losses of KRW 28.2 billion and KRW 53 billion consecutively in 2022 and 2023, adversely affecting Korea Zinc’s financial soundness.
Youngpoong stated, “There is a legitimate reason to request inspection and copying of related accounting books and documents to determine whether the overseas investment in Igneo was properly evaluated, whether the investment funds were used for other purposes, and whether the current management fulfilled their duty of care in the decision-making process regarding this overseas investment.”
⑷ Possible violation of the Commercial Act regarding payment guarantees made without board resolution
On April 1, Korea Zinc decided to provide a payment guarantee worth approximately KRW 269.4 billion to Kataman Metals, LLC, a subsidiary and related party, with only CEO approval and internal review completed, without a board resolution.
According to Article 542-9, Paragraph 3 of the Commercial Act and Article 35 of its Enforcement Decree, a listed company with total assets exceeding KRW 2 trillion must obtain board approval when conducting transactions with related parties that exceed 1% of total assets or sales as of the most recent fiscal year-end.
However, Korea Zinc is suspected of violating the Commercial Act by failing to obtain board approval despite the payment guarantee to Kataman Metals exceeding 1% of Korea Zinc’s total assets and sales.
Youngpoong expressed, “We have doubts about the circumstances under which the payment guarantee was made without the legally required board resolution. It is necessary to verify whether the payment guarantee was business-essential and whether there were any additional illegal acts related to the guarantee.”
⑸ Allegations of preferential treatment in business dealings
Youngpoong stated, “There have been multiple media reports alleging that Korea Zinc is channeling work orders to C.S. Design Group Co., Ltd. (currently The Boundary), suspected to be operated by relatives of Chairman Choi Yoon-beom. Providing services or transactions to related parties or other companies under unfairly favorable conditions may constitute unfair trade practices. This issue also needs to be examined.”
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