Legal Form of Australian Subsidiary 'SMC' Under the Commercial Act
Legality of Voting Rights Restrictions for Management Rights Defense
Securing Court Rulings to Build a Defense Strategy
It has been reported that Korea Zinc has obtained and is analyzing a court ruling that determines the legal form of its subsidiary Sun Medal Corporation (SMC) under the Commercial Act as a 'private company limited by shares.' Yeongpoong and MBK Partners (hereinafter MBK Alliance), who are engaged in a management rights dispute with Korea Zinc, previously filed an injunction lawsuit to suspend the effectiveness of the shareholders' meeting last month to challenge the legality of Yeongpoong's voting rights restrictions. The legal form of SMC, a subsidiary of Korea Zinc, is considered the key issue in the injunction lawsuit, and Korea Zinc believes, based on the obtained ruling, that SMC is highly likely to be recognized as a stock company.
According to industry sources on the 10th, Korea Zinc, SMC, and the company's legal representatives have begun analyzing rulings that classify companies similar to SMC as 'private companies limited by shares.' This is a crucial issue that will determine whether the injunction lawsuit will be granted. Whether SMC is a stock company or a limited company will decide the validity of the mutual voting rights restriction card that Chairman Choi Yoon-beom of Korea Zinc has played. This is interpreted as a preparatory step to have the court recognize the legality of the mutual voting rights restriction card in the injunction lawsuit filed by the MBK Alliance to suspend the shareholders' meeting effectiveness.
The mutual voting rights restriction regulation under the Commercial Act (Article 369, Paragraph 3) applies only to stock companies that issue shares and allow their transfer. Therefore, if SMC is a stock company, the resolution of the Korea Zinc temporary shareholders' meeting restricting Yeongpoong's voting rights based on this regulation is justified. Korea Zinc has focused on the official name of SMC registered with the Australian public authority, 'Sun Metals Corporation Pty Ltd,' particularly on the interpretation of 'Pty Ltd,' which indicates the company's form. Until now, the MBK Alliance has argued that Pty Ltd has the characteristics of a limited company under Australian corporate law.
However, Korea Zinc recently secured a ruling that states Pty Ltd is a 'private company limited by shares composed of 50 or fewer shareholders.' Expanding Pty Ltd stands for 'Proprietary Company, Limited By Shares,' and as the phrase 'Limited By Shares' suggests, it fundamentally corresponds to a stock company that issues shares and whose shareholders have limited liability.
Korea Zinc is also reported to have secured a Supreme Court precedent that deems mutual voting rights restrictions for the purpose of defending management rights as lawful. The Supreme Court has maintained through several precedents that issuing new shares or convertible bonds by third-party allotment solely for management rights defense violates good faith and other principles. If the court hearing the injunction lawsuit were to extend or analogize this precedent to mutual voting rights restrictions, it would be unfavorable to Korea Zinc. However, if Korea Zinc presents a precedent that allows voting rights restrictions based on mutual shareholding for management rights defense as a defense argument in the upcoming injunction lawsuit, the situation could turn around.
Typically, companies delegate tasks such as securing and analyzing precedents to their appointed legal teams. Nevertheless, Korea Zinc is reportedly putting considerable effort into this work because it views the injunction lawsuit as a turning point that will determine the future direction of the management rights dispute.
The injunction lawsuit is expected to conclude before the Korea Zinc regular shareholders' meeting next month, following a court hearing scheduled for the 21st. If the court rules in favor of Korea Zinc, the resolution to appoint directors passed at last month's temporary shareholders' meeting will remain effective, giving Chairman Choi Yoon-beom a favorable position to defend management rights. At that temporary shareholders' meeting, all 14 director candidates proposed by Korea Zinc were elected to the board. As a result, Korea Zinc secured 18 out of 19 seats on the board.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
