Alleged Breach of Trust and Fair Trade Act Violations under the Act on the Aggravated Punishment of Specific Economic Crimes
"Severe Damage to Shareholder Rights and Capital Market Order"
All-Out Pressure Following Fair Trade Commission Report and Provisional Injunction
Yeongpung has filed a complaint with the prosecution against Choi Yoon-beom, chairman of Korea Zinc, its management dispute opponent, as well as current and former board members of its subsidiary Sun Metal Corporation (SMC). Earlier, Yeongpung reported Chairman Choi and others to the Fair Trade Commission for violating the Fair Trade Act and filed a provisional injunction with the court to suspend the effectiveness of the temporary shareholders' meeting resolution, signaling an all-out pressure campaign.
Yeongpung and MBK Partners (hereinafter the MBK alliance) announced on the 3rd that they submitted a complaint to the Seoul Southern District Prosecutors' Office against Chairman Choi, President Park Ki-duk, SMC corporate head Lee Seong-chae, and SMC CFO Choi Joo-won for violations of the Act on the Aggravated Punishment of Specific Economic Crimes (breach of trust) and the Fair Trade Act. The MBK alliance stated, "Chairman Choi committed unprecedented illegal acts, such as creating an illegal investment structure to secure his position, severely damaging shareholder rights and the order of the capital market."
The MBK alliance claimed, "The actions of the four accused, including Chairman Choi, constitute clear breach of trust that cannot be justified by principles of business judgment." Regarding the background of filing the complaint under the Act on the Aggravated Punishment of Specific Economic Crimes for breach of trust, they explained, "The overseas affiliate SMC, which is 100% controlled by Korea Zinc, was mobilized and company funds were used solely to achieve Chairman Choi's personal interest in maintaining control."
The Supreme Court, through precedents in 2005 and 2007 on similar cases, ruled that "when a subsidiary or an affiliate of a parent company, without a clear business necessity related to its own operations, purchases shares of another company at the request or instruction of the parent company's chairman for his personal benefit, and uses them solely to achieve that purpose," it constitutes breach of trust in the course of business.
Regarding the complaint for violation of the Fair Trade Act, the MBK alliance stated, "Chairman Choi and his collaborators artificially created an investment structure of 'Yeongpung-Korea Zinc-SMC-Yeongpung' by having SMC acquire Yeongpung shares to assert claims that restrict Korea Zinc's voting rights in Yeongpung." This is the first case where a corporate group intentionally created the appearance of voting rights restrictions under the Commercial Act using an overseas affiliate while simultaneously evading regulations such as mutual investment restrictions, which the MBK alliance argues is an illegal act that directly undermines the legislative intent of the Fair Trade Act.
The MBK alliance further elaborated that SMC's acquisition of Yeongpung shares is an "illegal act to evade the provisions of Article 21 of the Fair Trade Act (Article 36, Paragraph 1 of the Fair Trade Act)." They also stated that it precisely corresponds to the act of acquiring or holding shares of a company (Yeongpung) by an affiliate that holds treasury stock (Korea Zinc) under another's name (SMC) (Enforcement Decree Article 42, Item 4).
An MBK alliance official said, "Chairman Choi and his collaborators harm the interests of shareholders and general investors for the benefit of one person, shamelessly engaging in any illegal acts such as using Korea Zinc's funds as a private treasury," adding, "Given the seriousness of the crime and the risk of evidence destruction, the capital market and our society must recognize that the rule of law is enforced through the prosecution's swift and strict investigation."
On the 23rd, the day of the Korea Zinc extraordinary general meeting of shareholders, Korea Zinc shareholders are lining up to enter the shareholders' meeting hall at the Grand Hyatt Seoul in Jung-gu, Seoul. Photo by Jo Yong-jun
This move by the MBK alliance comes about ten days after the temporary shareholders' meeting of Korea Zinc on the 23rd of last month, which had foreshadowed criminal charges. During this period, the MBK alliance reported Chairman Choi and others to the Fair Trade Commission on the 31st of last month for violating the Fair Trade Act and also filed a provisional injunction with the Seoul Central District Court to suspend the effectiveness of the temporary shareholders' meeting resolution.
The MBK alliance also claimed the source of funds for SMC's acquisition of Yeongpung shares was a loan guaranteed by Korea Zinc. Previously, at the end of 2023, Korea Zinc provided a payment guarantee and borrowed 116 billion KRW from ANZ Bank in Australia and others, which is highly likely to have been used to acquire approximately 190,000 shares of Yeongpung (57.5 billion KRW).
The MBK alliance pointed out, "57.5 billion KRW is a large amount, approximately 54% of the average annual CAPEX investment of 105.8 billion KRW over the previous five years until 2023," adding, "It is difficult to see that SMC acquired Yeongpung shares based on its own business judgment." They emphasized, "This constitutes an illegal act to evade the mutual investment prohibition under the Fair Trade Act."
On the other hand, Korea Zinc criticized, "The MBK side is repeatedly making unreasonable moves by piecing together facts as if a debt guarantee case from three years ago occurred recently." They rebutted, "The funds used to acquire Yeongpung shares were SMC's own funds, and neither Korea Zinc nor other affiliates used their funds," adding, "Korea Zinc's guarantee for SMC's borrowing limit was approved in 2022, well before any hostile takeover attempt occurred."
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