How will court rule on Korea Zinc chairman's latest move?

Korea Zinc shareholders queue to enter the extraordinary shareholders’ meeting venue at Grand Hyatt Seoul, Jan. 23. Joint Press Corps If MBK’s injunction request granted, proxy battle to restart from scratch By Jun Ji-hye The battleground for control of Korea Zinc has shifted from a shareholders' meeting to the courts, as Chairman Choi Yun-beom faces an injunction request made by the alliance of private equity firm MBK Partners and Young Poong to suspend the validity of the resolutions passed at the extraordinary shareholders' meeting on Jan.

23. Ahead of the shareholders’ meeting, Choi swiftly established a cross-shareholding structure within the company to defend his control, effectively excluding Young Poong from exercising its voting rights during the meeting. Attention is now on whether Choi’s actions were unlawful, with the court's ruling expected to have a decisive impact on the ongoing power struggle within the world’s largest zinc smelter.



On Friday, the MBK alliance filed an injunction request with the Seoul Central District Court to suspend the validity of the resolutions passed at the shareholders’ meeting, including the introduction of the cumulative voting system, which Choi had pushed for to block the alliance’s recommended candidates from joining the board. This move comes despite Choi’s side belatedly extending an olive branch to the MBK alliance by proposing the start of discussions for a potential grand compromise. On the same day, the alliance filed a complaint with the Fair Trade Commission, accusing Korea Zinc, Choi and CEO Park Ki-deok, as well as current and former board members of Sun Metal Corporation (SMC) of violating the Fair Trade Act.

SMC is a wholly owned Australian subsidiary of Korea Zinc. On the eve of the extraordinary shareholders’ meeting, Young Poong Precision, controlled by Choi, sold 10.33 percent of Young Poong shares to SMC.

In so doing, Choi created a new cross-shareholding structure and effectively nullified Young Poong’s voting rights — a 25.42 percent stake — in Korea Zinc. Under the Commercial Act, if company A, either alone or through its subsidiary, holds 10 percent or more of company B’s shares, the shares that B holds in A lose their voting rights.

Choi’s side leveraged this legal provision to neutralize Young Poong’s influence. The MBK-Young Poong alliance holds 40.97 percent of Korea Zinc’s shares, compared to 34.

35 percent held by Choi and his allies. However, with Young Poong’s stake being locked, the alliance’s effective shareholding was reduced to around 15.55 percent, resulting in their defeat in the vote.

As a result, only the proposals put forward by Choi’s side, including the implementation of the cumulative voting system and a cap on the number of directors at 19, were approved in the shareholders’ meeting. Kim Kwang-il, a partner at MBK Partners overseeing the Korea Zinc deal, speaks during an online press conference, Jan. 24, criticizing Korea Zinc's creation of a cross-shareholding structure ahead of the extraordinary shareholders’ meeting.

Screenshot from Zoom MBK argued that Choi’s side unlawfully created a cross-shareholding structure within Korea Zinc to defend his control of the company and that excluding Young Poong’s voting rights was a clear case of fraudulent conduct. “The resolutions passed at the Korea Zinc extraordinary shareholders’ meeting were based on illegal and unjust logic and should be canceled or nullified,” an MBK official said. “Korea Zinc is a national key industry.

The series of unlawful actions recklessly carried out by Choi must be corrected.” The prevailing interpretation in the legal community is that the restrictions on cross-shareholding voting rights under the Commercial Act apply only to stock companies where stocks can be issued and transferred. The MBK alliance claimed that since SMC is a limited liability company and a foreign entity, such restrictions under domestic law do not apply.

On the other hand, Choi’s side contended that SMC is a stock company with a share issuance specification and that the cross-shareholding regulations apply regardless of whether the company is domestic or foreign. With both sides set to face off again in a proxy battle at the regular shareholders’ meeting in March, the injunction ruling is expected to have a decisive impact on the balance of power within the zinc smelter. If the court rejects the MBK alliance’s injunction request, Choi will be one step closer to securing his control over Korea Zinc.

However, if the injunction is granted, the resolutions from the Jan. 23 meeting will be nullified and MBK and Young Poong’s voting rights will be fully restored. In such an instance, the proxy battle will effectively restart from scratch, and the alliance, with voting rights nearing that of a majority, would be the clear favorite to win.

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