[Invest&Law] Need for a Commercial Specialized Court Arises in the Korea Zinc Dispute

Criminal Complaints and Injunctions Continue in the Korea Zinc Case
"Prolonged Disputes Negatively Impact the Economy... Need for Specialized Commercial Court and Improvements to Injunction System"

As the management rights dispute at Korea Zinc drags on, calls are growing for improvements in related legal systems, including the establishment of a specialized commercial court to focus on corporate governance issues. Since it takes a long time for courts to issue rulings when shareholders file injunctions or lawsuits against major management decisions, there is a need for a specialized legal resolution body to be introduced quickly.

According to the investment banking (IB) industry on the 4th, recently, Youngpoong, the largest shareholder of Korea Zinc, filed an injunction with the Seoul Central District Court requesting to suspend the effect of the resolution of the Korea Zinc extraordinary general meeting held last month. The management rights dispute between Youngpoong, MBK Partners, and Korea Zinc, which began in September last year, has lasted nearly five months, but even after the extraordinary general meeting, the battle between the two sides has intensified with a flood of Fair Trade Commission reports, prosecution complaints, and injunction applications.

Earlier, on the 23rd of last month, a day before the extraordinary general meeting considered a turning point in the Korea Zinc management rights dispute, Chairman Choi Yoon-beom unexpectedly announced that he would transfer 10% of Youngpoong's shares to Korea Zinc's overseas subsidiary, Sun Metal Corporation (SMC). Through SMC, Korea Zinc acquired Youngpoong's shares, thereby restricting Youngpoong's voting rights in Korea Zinc. As a result, the agenda to cap outside directors at 19 and the appointment of seven directors recommended by Korea Zinc were passed, but the agenda to appoint 14 outside directors proposed by Youngpoong and MBK was rejected.

Two days after the extraordinary general meeting, Korea Zinc proposed a "grand compromise," stating it would open its board and management, but the feasibility of this is now almost gone. After the general meeting, the Youngpoong-MBK alliance reported Chairman Choi, President Park Ki-duk of Korea Zinc, CEO Lee Sung-chae of SMC, and CFO Choi Joo-won to the Fair Trade Commission for alleged violations of the prohibition on mutual shareholding and illegal acts under the Fair Trade Act. On the 31st of last month, they filed an injunction to suspend the effect of the extraordinary general meeting resolution. On the 3rd of this month, they also filed a complaint with the prosecution against Chairman Choi, President Park, Lee, and Choi for breach of trust under the Act on the Aggravated Punishment of Specific Economic Crimes and violations of the Fair Trade Act.

Accordingly, voices within the capital market are growing louder, calling for "strengthening legal remedies for shareholders." The rationale is that prolonged conflicts and legal disputes among shareholders lead to weakened corporate competitiveness and market instability. In particular, the Korea Corporate Governance Forum recently stated in a position paper that "the act of usurping shareholders' voting rights to undermine the existence of a stock company, the use of corporate personality such as company assets and legal capacity for the private interests of specific shareholders, and the timing of share transactions set the day before the general meeting to nullify shareholders' right to file injunctions all seriously infringe on shareholder interests."

They further emphasized, "If corporate management disputes are prolonged, they can negatively affect not only the companies but also the entire national economy," and stressed, "To resolve this, the establishment of a specialized commercial court is necessary." A specialized commercial court refers to a court that handles corporate-related legal disputes professionally. It is an institution that can promptly and expertly resolve matters related to corporate governance and management rights disputes under commercial law. Currently, in Korea, general courts handle commercial disputes, but there have been criticisms that quick responses are difficult for complex corporate structures and issues requiring specialized knowledge.

Lee Nam-woo, chairman of the Korea Corporate Governance Forum, said, "The Delaware courts in the United States effectively serve as specialized courts for corporate law, but Korea lacks a specialized commercial court, making it difficult to provide swift and expert remedies even when shareholders suffer damages. We need to actively consider establishing a specialized commercial court." He also called for improvements to the injunction system, saying, "There is a growing need for an emergency injunction system that can issue injunctions immediately without cross-examination when events occur just before the general meeting, like in a hospital emergency room, and a rapid injunction system that can correct issues within a day or two even after the general meeting."