MBK Partners, the largest shareholder of Korea Zinc, and Youngpoong are considering filing a provisional injunction to prohibit the proposal of agenda items against Chairman Choi Yun-bum, who is involved in a management dispute. Chairman Choi's side has put forth a plan to introduce a concentrated voting system at the extraordinary general meeting of shareholders on Jan. 23 of next year and proposed the nomination of directors as a precondition for approval. However, MBK and Youngpoong believe that this aspect poses a significant risk of legal violation. They particularly see the agenda items from Chairman Choi's side as violating the principle of shareholder equality under the Capital Markets Act.
According to sources in the investment banking (IB) industry and legal circles on the 26th, MBK and Youngpoong are reviewing the option of filing a preliminary injunction to ban the proposal of agenda items by Chairman Choi's side. A provisional injunction to prohibit the proposal of agenda items is usually filed simultaneously with a resolution prohibition injunction. The former aims to prevent certain agenda items from being proposed, while the latter aims to prevent resolutions, as both essentially follow the same path.
Earlier, Korea Zinc confirmed the agenda for the extraordinary general meeting on the 23rd and published a corrected announcement regarding the convocation resolution. The proposal to amend the articles of incorporation to introduce a concentrated voting system was submitted by Yum Development, a subsidiary of Chairman Choi's side, through a shareholder proposal. Currently, like most other corporations, Korea Zinc excludes a concentrated voting system from its articles of incorporation, aiming to change this so that a concentrated voting system can be implemented.
The concentrated voting system is a voting method that grants as many voting rights as the number of directors to be elected for each share of stock when appointing directors. In cases with multiple director candidates, the given voting rights can be concentrated or distributed to one or several candidates. If directors are appointed through a simple voting method, all directors are elected based on the intention of the major shareholders who own the majority of the shares. However, by using the concentrated voting method, minority shareholders can concentrate their voting rights to elect directors they recommend, thereby preventing all directors from being appointed according to the major shareholders' will.
Since there are a total of 21 director candidates, if the concentrated voting system is introduced, minority shareholders could appoint their preferred candidates to the board with just a 4.5% equity stake. In contrast to the Choi family, whose equity is dispersed among several people, MBK and Youngpoong hold 40.97% (46.7% in voting rights) of the equity shared between the two, which puts them at a disadvantage.
Industry experts believe that there is a possibility that the concentrated voting system proposal put forth by Chairman Choi's side as agenda item 1-1 will be approved. Originally, amendments to the articles of incorporation require a special resolution at the general meeting, needing at least two-thirds of the votes of the shareholders present and at least one-third of the total issued shares in order to pass. However, in the case of amending the articles of incorporation for the introduction of a concentrated voting system, the exercise of voting rights is limited to 3% of the total issued shares, regardless of how much equity shareholders hold. Therefore, when voting on whether to introduce the concentrated voting system, MBK and Youngpoong can only exercise their voting rights up to 3% each.
MBK and Youngpoong believe there are legal issues with the director nomination proposal, which is contingent upon the approval of agenda item 1-1. They specifically think there is a risk of violating the Capital Markets Act. Chairman Choi's side allegedly disrupted market order under the Capital Markets Act by concealing such shareholder proposals until the shareholder registry was finalized on the 20th.
Investment banking industry officials suggest that if the proposal for the concentrated voting system by Chairman Choi's side had been known, Korea Zinc's stock price would have risen further. If the concentrated voting system is implemented, it becomes crucial to secure as many shares as possible, regardless of the majority stake. An industry official noted, “The market is well aware of this, so there is a strong likelihood the stock price exceeded 2 million won.”
MBK Partners also points out that Chairman Choi's side has been continuously buying stocks while preparing to introduce the concentrated voting system. Shareholders from Chairman Choi's side purchased 0.13% from the 15th to the 22nd of last month and 0.32% from the 26th of last month to the 4th of this month through market purchases. The acquisition prices are widely distributed between 900,000 won and 1.6 million won.
MBK and Youngpoong also emphasize that other minority shareholders have missed the opportunity to recommend directors. A representative from MBK Partners stated, “If the fact that the proposal for the introduction of the concentrated voting system was raised had been known to other shareholders, such as the National Pension Service or individual minority shareholders, they would likely have attempted to have their preferred candidates on the board.” As MBK and Youngpoong have already recommended 14 candidates, each shareholder could significantly increase their voting rights.
MBK and Youngpoong assert that Chairman Choi's side has not only violated the principle of shareholder equality but also the Commercial Act. Articles 382-2(1) and 542-7(2) of the Commercial Act stipulate that, unless otherwise provided in the articles of incorporation, shareholders can request the appointment of directors through the concentrated voting method.
MBK and Youngpoong pay attention to the phrase 'unless otherwise provided in the articles of incorporation.' They argue that at the time the proposal for the appointment of directors through the concentrated voting method is raised, the articles of incorporation must not exclude the concentrated voting system. In other words, since the articles of incorporation did not permit the concentrated voting system at the time the board appointment proposal was submitted (on the 23rd), the proposal for the appointment of directors based on the concentrated voting system is invalid, according to MBK Partners.
In response, Chairman Choi's side argued, “The amendment to the articles of incorporation takes effect immediately upon approval at the general meeting, so proposing subsequent agenda items (director nominations) under the condition that agenda item 1-1 is passed is not an issue,” but MBK and Youngpoong maintain that this reasoning is also flawed.
A representative from MBK Partners commented, “For instance, if the amendment to the articles of incorporation includes the increase of the number of directors, it is possible to propose subsequent agenda items (director nominations) based on the premise of approval. However, in the case of the concentrated voting system, it is strictly regulated by the Commercial Act, so the situation is different.”