The court partially accepted the request for a preliminary injunction filed by Young Poong and MBK Partners to suspend the effectiveness of the resolution made at the temporary shareholders' meeting of Korea Zinc held on Jan. 23. Accordingly, the new upper limit on the number of directors (19) and the appointment of new outside directors proposed and passed by Chairman Choi Yun-beom's side have been suspended. However, the court stated that the effectiveness of the introduction of the cumulative voting system is maintained.
On the 7th, the Seoul Central District Court Civil Division 50 (Chief Judge Kim Sang-hoon) partially granted the request for a preliminary injunction filed by Young Poong against Korea Zinc, regarding the suspension of the validity of the shareholders' meeting resolution. Accordingly, the upper limit on the number of directors for Korea Zinc has been set to 19 or fewer, and the effectiveness of the shareholders' meeting agenda to appoint 7 new outside directors has been suspended.
The court also accepted the request for a preliminary injunction filed by Young Poong to suspend the duties of 7 new outside directors of Korea Zinc. As a result, the duties of I Sang-hoon, the outside director from Hankook & Company, Emeritus Professor Lee Hyung-kyu from Hanyang University School of Law, Emeritus Professor Kim Kyung-won from Sejong University College of Business and Economics, James Andrew Murphy, Senior Advisor at Oliver Wyman, Emeritus Professor Lee Jae-yong from Yonsei University's Department of Electrical and Electronic Engineering, Jeong Da-mi, Dean of the College of Business at Myongji University, and Professor Choi Jae-sik from KAIST Graduate School of AI have been suspended.
At the shareholders' meeting of Korea Zinc held on Jan. 23, the introduction of the cumulative voting system, the establishment of the upper limit on the number of directors (19), and the appointment of 7 new directors proposed by Chairman Choi's side were all passed. As a result, the composition of the Korea Zinc board of directors became 18 for Chairman Choi's side and 1 for MBK (Jang Hyung-jin, Young Poong Advisor).
At that time, Chairman Choi's side held 34.35% of the equity, including friendly shares, while the Young Poong-MBK alliance held 40.97%. However, with more than half of the shares held by the Young Poong-MBK side rendered ineffective at the shareholders' meeting, the outcome ultimately shifted to Chairman Choi's favor.
The reason this situation was possible is due to the legal principle of 'mutual share restriction.' Mutual share restriction is a regulation that prevents two companies from exercising voting rights if either holds more than 10% of the other's equity. Korea Zinc did not have direct equity of more than 10% in Young Poong, but just before the shareholders' meeting, subsidiaries transferred more than 10% of the Young Poong shares they held to Korea Zinc's Australian subsidiary (SMC). As a result, a mutual share relationship that did not exist previously was created.
In the hearing concerning the preliminary injunction requested by Young Poong against Korea Zinc, the issue was whether the mutual share restriction under company law could be applied in this case. Young Poong-MBK argued that SMC is a foreign company and a limited liability company, thus not subject to the mutual share restriction under company law. In contrast, Chairman Choi's side emphasized that SMC is a stock company, not a limited liability company.
The court accepted the argument from Young Poong-MBK that SMC is not a 'company' under company law to which the mutual share restriction applies. The court stated, 'SMC possesses discretion as to any reason to refuse the registration of the transfer of shares, which is different from a stock company where share transfers are generally recognized under company law.' It added, 'SMC appears to have more characteristics of a limited liability company as defined under company law.'
The court also noted, 'It is calculation-wise evident that if voting rights on Young Poong-MBK shares had not been restricted, proposals like the upper limit on the number of directors would have been rejected.'
However, the court decided to maintain the effectiveness of the proposal to introduce the cumulative voting system. The cumulative voting system grants as many voting rights as the number of directors to be appointed per share when electing directors, which is considered favorable for shareholders with relatively low equity. The court found that this agenda was passed with a 75.2% approval rate, even with restrictions on Young Poong-MBK's voting rights, and concluded that even if Young Poong-MBK's voting rights had been intact, the approval rate would have reached 69.3%, thus meeting the requirements for a special resolution at the shareholders' meeting.