In a suit filed by Young Poong and MBK Partners against Korea Zinc to annul shareholder meeting resolutions, Seoul Central District Court Civil Division 29 (Presiding Judge Ko Seung-il) on the 12th accepted the plaintiffs' claim. The resolutions targeted were those passed at the regular shareholders' meeting on March 28, 2025. They include the item capping the number of directors at 19 and the appointment of five people on Chairman Choi Yun-beom's side as directors. Korea Zinc said it would appeal immediately. The dispute will move to a higher court.
The court said, "We did not accept the legal arguments concerning the requirements for establishing cross-shareholding in this case." It nonetheless held that a cross-shareholding must not be used to tie up an existing shareholder's voting rights for the purpose of defending management control. The reasons for the ruling were not explained in detail in court. Which measures formed the basis for the finding of illegality can be confirmed only after the written judgment is made public.
Under the Commercial Act, if a company holds more than 10% of another company, directly or through a subsidiary, the voting rights on that company's shares held by the other company are restricted. Just before last year's regular shareholders' meeting, Korea Zinc secured more than 10% of Young Poong through its Australian subsidiary Sun Metals Holdings (SMH). Once this cross-shareholding relationship arose, the voting rights on Young Poong's 25.42% stake in Korea Zinc were tied up.
As a result, the voting rights the Young Poong-MBK alliance could exercise shrank from a 40.97% stake to 15.55%. Items proposed by Chairman Choi's side (34.35%), including the cap on the number of directors, were approved. The board came to be dominated by Choi's side by 11 to 4. Young Poong's side, which held the larger stake, tried to secure a majority by increasing the number of directors but was blocked by the cap.
In a statement, Young Poong claimed that the court had confirmed that it was improper to create a cross-shareholding structure by drawing in an overseas affiliate and then strip the largest shareholder of its voting rights. In a provisional injunction case in late August, the Supreme Court had ruled that the restriction of voting rights at the extraordinary shareholders' meeting in January last year was illegal. Young Poong stressed that this time even the regular shareholders' meeting resolutions have been annulled. It demanded that Chairman Choi and management apologize to shareholders.
Korea Zinc countered that the first-instance ruling conflicts with Supreme Court precedent. It cited the injunction case over exercising voting rights that Young Poong filed before the regular shareholders' meeting. At that time, the court ruled that the cross-shareholding provision "must be applied objectively and uniformly, and whether voting rights are restricted cannot be judged differently case by case in light of the subjective intent behind forming the cross-shareholding relationship." The Supreme Court finalized that decision in April. Korea Zinc said a higher court must necessarily reexamine the first-instance finding of illegality based on the purpose of defending management control.
Korea Zinc said that in the appeal trial it will explain the legal problems of the first-instance ruling, focusing on the legislative intent of the cross-shareholding provision and its requirements for application. It criticized MBK and Young Poong for repeating allegations, public-opinion campaigns and lawsuits since launching a hostile merger and acquisition (M&A) in September 2024. It argued that this is damaging the company's management stability and corporate value.
This ruling carries different weight because it dealt with the regular shareholders' meeting resolutions that underpin the current management system. Each time a ruling came out over last January's extraordinary shareholders' meeting, Korea Zinc had said the governance was unaffected because the current system was launched through the March regular meeting resolutions.
However, it could take two to three years before the Supreme Court finalizes the case. For that reason, the management structure is not expected to be shaken immediately. Some analysts say that if the ruling is finalized as it stands, the rule limiting the number of directors would become void, making it easier for the Young Poong-MBK side, which holds the larger stake, to enter the board.