[Edaily Marketin Reporter Hur Jieun ] The Supreme Court has ruled that the measure taken by KoreaZinc(010130)last January at an extraordinary shareholders’ meeting—which restricted the voting rights held by Youngpoong(000670)through its Australian subsidiary Sun Metal Corporation (SMC)—was unlawful.

According to legal circles on the 31st, the Supreme Court upheld the lower court’s ruling on the 28th that SMC, a KoreaZinc subsidiary in Australia, does not qualify as a subsidiary under the Commercial Act. This decision follows the Seoul Central District Court’s partial approval last March of a preliminary injunction request filed by Youngpoong, which was subsequently finalized by the Supreme Court after an appeal.

The court found that SMC is a company with a closed structure (Pty Ltd) and cannot be considered the same or most similar to a “joint-stock company” as defined by Korean commercial law. Article 369, Paragraph 3 of the Commercial Act stipulates that provisions restricting voting rights apply only to entities that qualify as “joint-stock companies” under Korean commercial law; the court held that SMC does not meet this requirement. Accordingly, the court ruled that the restriction on Youngpoong’s voting rights—which was based on the premise that SMC was a subsidiary—lacks legal grounds.

In January of last year, on the day before the extraordinary general meeting of shareholders, KoreaZinc Chairman Yoon Choi sold his 10.3% stake in Youngpoong to SMC, a subsidiary in Australia. This created a circular ownership structure running from “KoreaZinc → SMC → Youngpoong → KoreaZinc.” Based on this, KoreaZinc restricted 25.4% of Youngpoong’s voting rights; as a result, proposals—including one to set a cap on the number of directors and another to appoint outside directors recommended by KoreaZinc—were passed without opposition from Youngpoong.

Legal observers speculate that this Supreme Court decision could influence the deliberations of the Fair Trade Commission (FTC). It is reported that the FTC has completed its review report on whether KoreaZinc’s use of overseas affiliates, such as SMC and SMH, to form a circular shareholding structure constitutes an act of circumventing the law under the Fair Trade Act, and is now awaiting deliberation by its plenary session. Although this is a separate procedure from the judgment under domestic commercial law, there is speculation that the Supreme Court’s ruling may be considered as reference material during the deliberation process.

Representatives from MBK and Youngpoong stated, “This Supreme Court decision will be an important factor in the Fair Trade Commission’s review, which is examining whether the company attempted to circumvent domestic legal order and undermine shareholder rights by using overseas affiliates as a backdoor.”