Economic Reform Solidarity Commentary
"New Circular Shareholding by Korea Zinc Violates the Fair Trade Act"
Civic Group Calls for Investigation and Amendment of the Law
The civic group Economic Reform Solidarity has interpreted that the formation of new circular shareholding by Korea Zinc constitutes a violation of the Fair Trade Act.
The Korea Zinc Extraordinary General Meeting of Shareholders is taking place on the afternoon of the 23rd at the Grand Hyatt Seoul in Yongsan-gu, Seoul. Photo by Jo Yong-jun
On the 3rd, Economic Reform Solidarity stated in a commentary, "This circular shareholding has the sole purpose of maintaining the control of Chairman Choi Yoon-beom of Korea Zinc," and argued, "It directly violates the legislative intent of the Fair Trade Act, which prohibits circular shareholding to prevent maintaining or expanding control through fictitious capital."
On the 22nd, a day before Korea Zinc's extraordinary general meeting of shareholders, Chairman Choi's side arranged for SMC, a subsidiary of SMC Holdings wholly owned by Korea Zinc, to newly acquire 10.33% of Youngpoong's shares to restrict Youngpoong's voting rights. In this process, a new circular shareholding chain was formed as 'Youngpoong → Korea Zinc → SMC Holdings → SMC → Youngpoong.'
Economic Reform Solidarity argued, "Although SMC is an overseas affiliate and thus does not violate Article 22 of the Fair Trade Act, which prohibits affiliate shareholding that forms circular shareholding with domestic companies, there is a high possibility that it violates Article 36 of the Fair Trade Act, which prohibits evasive acts, and Article 42 of the Enforcement Decree of the Fair Trade Act, which sets the types and standards of evasive acts." Article 42 of the Enforcement Decree defines "acquiring or owning shares of an affiliate that owns its own shares under another person's name on one's own account" as a type of evasive act, and this circular shareholding is analyzed to fall under this category.
The civic group emphasized, "The Fair Trade Commission should immediately start an investigation into whether this constitutes an evasive act and promptly order corrective measures." They added, "Through this Korea Zinc case, it has been clearly confirmed that circular shareholding through overseas affiliates can be used to maintain or expand the control of the founding family," and "It is now time to discuss amending the Fair Trade Act to prohibit 'mutual and circular shareholding including overseas affiliates.'"
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