According to legal and investment banking (IB) industry sources on the 12th, the Seoul Central District Court ruled in favor of the plaintiffs in the lawsuit filed by MBK and Youngpoong against KoreaZinc seeking to annul the resolutions of the shareholders’ meeting. Consequently, the court ruled to annul key resolutions passed at KoreaZinc’s annual general meeting held last March, including amendments to the articles of incorporation and the appointment of directors and audit committee members.
The key issue in this lawsuit was the legality of measures taken by KoreaZinc to restrict Youngpoong’s voting rights based on a cross-shareholding structure formed using overseas affiliates. At the time, KoreaZinc proceeded with the annual general meeting while restricting Youngpoong’s exercise of voting rights by applying regulations related to cross-shareholdings.
MBK and Youngpoong have argued that KoreaZinc established a cross-shareholding structure for the purpose of defending its management control and used it to restrict the largest shareholder’s voting rights, and have demanded the annulment of the resolutions passed at that shareholders’ meeting. They maintain that this ruling establishes that measures to restrict voting rights for the purpose of defending management control cannot be justified, and that the courts have put a judicial brake on the practice of using cross-shareholding regulations as a means to maintain management control by restricting the voting rights of existing shareholders.
Previously, in August, the Supreme Court had upheld a ruling that the measure restricting Youngpoong’s voting rights at KoreaZinc’s extraordinary general meeting in January of last year was unlawful. MBK and Youngpoong argued that, with the addition of this ruling annulling the resolutions from the recent annual general meeting, the legitimacy of the successive voting rights restriction measures taken by KoreaZinc has been undermined.
Following this ruling, legal uncertainty is expected to increase regarding amendments to the articles of incorporation—such as the setting of a cap on the number of directors—and resolutions on the appointment of directors and audit committee members, all of which were approved at the regular shareholders’ meeting last March. However, since this is a first-instance ruling, the outcome may change depending on the decision of the appellate court.
Meanwhile, KoreaZinc plans to immediately appeal this first-instance ruling. KoreaZinc maintains that the court’s decision to apply provisions regarding cross-held shares differently based on subjective considerations—namely, the purpose of defending management control—contradicts existing Supreme Court precedents and court rulings finalized in related provisional disposition cases concerning the exercise of voting rights. The company intends to demonstrate the flaws in the first-instance ruling during the appeal process by citing legal principles regarding cross-held shares.
