Allegations of Violating Regulations Prohibiting New Circular Shareholding Structures
The Fair Trade Commission has launched an on-site investigation into Young Poong and its affiliate YPC over allegations of violating regulations prohibiting circular shareholding.
According to industry sources on December 22, the Fair Trade Commission dispatched investigators to Young Poong's headquarters and conducted an on-site inspection from December 17 to 19. Previously, in October, Korea Zinc requested an investigation by the Fair Trade Commission, claiming that Young Poong, its parent company, had established YPC to create a new circular shareholding structure in an attempt to thwart Korea Zinc’s efforts to defend its management rights. Young Poong and Korea Zinc are currently engaged in a management dispute.
In January, ahead of an extraordinary shareholders’ meeting, Korea Zinc arranged for its Australian affiliate SMC to acquire a 10.33% stake in Young Poong held by the Choi family, thereby establishing a circular shareholding structure: Korea Zinc-SMC-Young Poong-Korea Zinc. This move restricted the voting rights of Young Poong, the largest shareholder, at the January shareholders’ meeting.
In response, in March, Young Poong established YPC as a wholly owned subsidiary and transferred all of its 5,262,450 shares in Korea Zinc (representing a 25.42% stake) to YPC through a contribution in kind. As a result, a new circular shareholding structure was formed: Young Poong-YPC-Korea Zinc-SMH (Korea Zinc’s overseas subsidiary)-Young Poong. This effectively meant that Young Poong indirectly owned Korea Zinc.
Korea Zinc reported to the Fair Trade Commission that Young Poong had created a new affiliate and established a circular shareholding structure through affiliate investment. Under the Fair Trade Act, it is prohibited for large business groups subject to restrictions on mutual investment, such as Young Poong, to create new circular shareholding structures.
In response, Young Poong stated, "We only transferred assets held by Young Poong to overcome the situation where Korea Zinc was restricting our voting rights," and argued, "A circular shareholding structure already existed through overseas affiliates, and we did not create a new circular shareholding structure."
The Fair Trade Commission is reportedly examining whether Young Poong and YPC have violated provisions regarding monopoly regulation, restrictions on mutual investment, and the prohibition of circular shareholding.
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