This article was published on Jan. 2, 2025, at 6:04 p.m. on the CHOSUNBIZ Money Move (MM) site.
With the extraordinary general meeting of shareholders for Korea Zinc scheduled for the 23rd, MBK Partners has recently filed for a provisional injunction to prohibit the agenda items in court and is reportedly forming a large legal team to respond. This indicates the significance of the outcome of this injunction.
The reason MBK and Youngpoong are so invested in this injunction is that, despite securing nearly half of the voting equity, they find it difficult to guarantee a victory at the shareholders' meeting. MBK and Youngpoong argue that the proposal for the appointment of directors submitted by Chairman Choi Yoon-bum, predicated on the approval of the cumulative voting system, clearly violates the law, and they feel confident about their chances in this injunction.
According to investment banking (IB) and legal circles on the 2nd, MBK and Youngpoong have appointed additional lawyers, including Taepyeongyang Law Office and Han Nuri, as well as Hong Seung-myun, a former Director General of the Seoul High Court. The former Director General previously appeared on the legal team for MBK and Youngpoong in a prohibition of stock acquisition injunction.
From Taepyeongyang, lawyer Kim Sung-soo, who is in charge of managing legal operations, lawyer Ahn Young-soo, an expert in hostile mergers and acquisitions and shareholder meetings, and lawyer Bae Yong-man, who specializes in shareholder activism and meetings, have joined the team. From Sejong Law, 12 lawyers, including representative lawyer Oh Jong-han, capital market expert Jung Seong-gu, and Lee Won, a former judge from the court that handles appeals for injunctions, have also been appointed.
From Han Nuri, representative lawyer Seo Jeong has joined the team. Seo represented the side of Director Noh So-young in the appeal of the divorce case involving Choi Tae-won, Chairman of SK Group.
Unlike Chairman Choi's team, which has only retained Kim & Chang Law Office, MBK and Youngpoong's formation of an enormous legal team serves as evidence of the critical importance of this injunction. The proposals that MBK and Youngpoong are contesting are proposals 2 and 3, which are contingent upon the passage of proposal 1-1. Proposal 1-1 is a revision to the articles of incorporation to introduce the cumulative voting system, while proposals 2 and 3 are appointments of directors conditional on the approval of proposal 1-1.
MBK and Youngpoong argue that the proposal for the appointment of directors based on the cumulative voting system submitted by Chairman Choi's side violates the Commercial Act. Article 382-2, Paragraph 1 of the Commercial Act states, "Unless otherwise provided in the articles of incorporation, a request for the appointment of directors by cumulative voting may be made to the company." According to this provision, for the shareholder (Yumi Development) affiliated with Chairman Choi to apply for the appointment of directors based on the cumulative voting system, it must have been allowed under the articles of incorporation as of the reference date (last month’s 10th), which it was not. Therefore, MBK and Youngpoong claim this is unlawful.
It is not an exaggeration to say that the success or failure of this injunction hinges on how Article 382-2, paragraph 1 of the Commercial Act is interpreted. MBK and Youngpoong focus on the fact that when Chairman Choi's side requested the appointment of directors based on cumulative voting, the cumulative voting system was excluded from the articles of incorporation of Korea Zinc. This means that it is clearly a case of "unless otherwise provided in the articles of incorporation," making it impossible to request the appointment of directors based on the cumulative voting system.
On the other hand, Chairman Choi's side believes there are no legal issues with requesting the appointment of directors based on the approval of the cumulative voting system. A Korea Zinc official noted, "The effect of changes to the articles of incorporation takes effect immediately once the motion is passed at the shareholders' meeting," adding that "it is entirely possible to propose subsequent agenda items based on the condition that the amendment to the articles of incorporation is approved."
In response, MBK and Youngpoong assert, "The issue of introducing the cumulative voting system must be viewed differently." A senior official at MBK Partners stated, "For example, if an amendment to the articles of incorporation is made to increase the number of directors, it is possible to propose subsequent agenda items (director appointment proposals) at the same shareholders' meeting based on the condition that those are approved. However, the conditions for applying for the appointment of directors based on the cumulative voting system are explicitly stated in the Commercial Act," he emphasized.
If the cumulative voting system is approved at this extraordinary shareholders' meeting and the proposal for the appointment of directors based on that is put to a vote, Chairman Choi's side will be able to present multiple preferred candidates to the board of directors. If there are N candidates for directors under the cumulative voting system, small shareholders can secure a seat for their preferred candidate by holding at least 100/(N+1)% of the equity. Considering that there are 21 candidates for director in this extraordinary shareholders' meeting, simple calculations estimate that the necessary equity to appoint one desired candidate would be around 4.5%.
Therefore, if the equity is distributed among several individuals, the strategy of Chairman Choi’s side to allocate votes to preferred candidates would ensure those candidates' appointment. The side of the Choi family listed in the Korea Zinc shareholder registry is identified as 52 shareholders. The Kyungwon Cultural Foundation has no voting rights and has been excluded from this count. Together, they hold 17.5% of the equity, which corresponds to a voting right level of 19.9%.