New Phase in Korea Zinc Management Dispute... Outcome to Be Decided at This Month's General Meeting of Shareholders

Court Partially Grants Injunction:
"Unfair to Restrict Youngpoong's Voting Rights"
Appointment of 7 Directors Nullified
MBK Alliance Recovers 45% Stake, Gains Edge in Upcoming Vote
Cumulative Voting System Maintained by Court Could Be a Key Variable

The court's decision to uphold only the introduction of the cumulative voting system in the resolution of the Korea Zinc interim shareholders' meeting has ushered in a new phase in the dispute over Korea Zinc's management rights. The outcome of the management rights battle is now expected to hinge on how many director candidates recommended by the current Korea Zinc management and the Youngpoong-MBK Partners (hereafter MBK alliance) respectively secure seats on the board at the shareholders' meeting scheduled for the end of this month.

The Seoul Central District Court Civil Division 50 (Presiding Judge Kim Sang-hoon) partially granted the injunction filed by the MBK alliance on the 7th to suspend the effectiveness of the Korea Zinc interim shareholders' meeting resolution. The key point in the court's ruling was that the restriction of Youngpoong's voting rights, amounting to 25.4%, through Korea Zinc's subsidiary Sun Metal Corporation (SMC) by Chairman Choi Yoon-beom's side was deemed unfair.

Choi Yoon-beom, Chairman of Korea Zinc. Photo by Kim Hyun-min

Earlier, Chairman Choi's side caused SMC to acquire more than 10% of Youngpoong's shares just one day before the interim shareholders' meeting in January, thereby creating a 'circular shareholding link' in Korea Zinc's governance structure. According to Article 369, Paragraph 3 of the Commercial Act, if Company A holds more than 10% of Company B's shares either directly or through its subsidiaries or subsidiaries' subsidiaries, the voting rights of Company B's shares in Company A are nullified. This provision was used to limit the MBK alliance's voting rights in Korea Zinc.

As a result of this measure, all 14 director candidates proposed by the MBK alliance at the interim shareholders' meeting were blocked from entering the board. Conversely, all seven newly appointed directors were individuals recommended by Korea Zinc, reshaping the board composition from the previous 11-to-1 structure favoring Chairman Choi's side and Youngpoong to an 18-to-1 structure.

However, the court ruled that this measure was illegal, suspending the effectiveness of the resolution that set a cap of 19 directors, including the appointment of seven directors, which had been passed with the MBK alliance's voting rights restricted at the interim shareholders' meeting. Consequently, the MBK alliance's voting rights, representing 40.97% of shares, were restored, giving them a favorable position in the vote battle to control Korea Zinc's board. Currently, the voting rights held by Chairman Choi and Korea Zinc's side amount to only 34.35%.

On the 23rd, when the Korea Zinc extraordinary general meeting of shareholders was held, Korea Zinc shareholders were lining up to enter the shareholders' meeting hall at the Grand Hyatt Seoul in Jung-gu, Seoul. Photo by Jo Yong-jun

The variable is the cumulative voting system, which the court upheld. The cumulative voting system grants shareholders voting rights equal to the number of directors to be appointed, allowing them to concentrate votes on preferred candidates. This system offers an advantage to Chairman Choi's side, which is at a disadvantage in terms of shareholding. Therefore, if the regular shareholders' meeting vote battle is conducted under the cumulative voting system, it is expected that the outcome could be close, such as '13 to 11' or '12 to 12,' with Chairman Choi's side slightly ahead or tied with the MBK alliance.

Regarding the court ruling, Korea Zinc is reportedly in a state of surprise and is seeking countermeasures. Separately, Korea Zinc plans to finalize and disclose the exact schedule of the shareholders' meeting within next week. In response, the MBK alliance, seeing the court's injunction as bringing the acquisition of Korea Zinc's management rights within reach, is preparing strategies for the regular shareholders' meeting at the end of this month.

An MBK alliance official stated, "The court has dealt a severe blow to the illegal acts of Chairman Choi Yoon-beom of Korea Zinc, who mocked the capital market and Korea Zinc's shareholders," adding, "All individuals related to Chairman Choi, who disregards legal order and resorts to illegal and illicit means to maintain his position, will face strict legal judgment." The official also said, "Through a fair and transparent regular shareholders' meeting, we will make every effort to restore Korea Zinc's corporate governance and recover shareholder and corporate value."