The possibility of the largest shareholder MBK Partners-Young Poong alliance winning at the extraordinary general meeting of Korea Zinc on the 23rd has significantly increased. This is because the concentrated voting method proposed by Chairman Choi Yoon-beom's side has become unavailable.
As a result, the election of directors at Korea Zinc will take place by simple voting. The MBK-Young Poong side, which has already secured nearly half of the voting rights equity, is now in a favorable position to compose the board as they wish. There are a total of 14 director candidates recommended by MBK-Young Poong, all of whom will gain an advantageous position by securing the votes of MBK-Young Poong (46.7% of voting rights).
The concentrated voting system is a system that gives as many voting rights as the number of director candidates for each share of stock. In simple terms, shareholders can allocate all their votes to a single candidate. When electing 10 directors, a shareholder with one share can cast 10 votes. If the concentrated voting system had been introduced, it would have been possible for Chairman Choi Yoon-beom to defend management rights by concentrating all votes on four director candidates. However, according to the recent injunction decision, the election of directors will be determined by a simple voting method in which a majority of votes in favor are needed for each director.
For the directors recommended by Chairman Choi to be elected, all shareholders of the National Pension Service and domestic and foreign institutions must attend the extraordinary general meeting and cast votes only in favor of Chairman Choi's candidates. Realistically, the possibility of this happening is considered slim, according to investment banks (IB) and legal experts.
According to the legal community on the 21st, the Seoul Central District Court's Civil Division No. 50 (Chief Judge Kim Sang-hoon) upheld Young Poong's request for an injunction to prohibit the proposal of a resolution against Korea Zinc.
The court stated, "At the time Yumi Development proposed the introduction of the concentrated voting system, Korea Zinc's articles of incorporation explicitly stipulated that the concentrated voting system would not apply," and concluded, "Ultimately, the request for concentrated voting in this case is a violation of the Commercial Act and cannot be regarded as a legitimate claim."
The resolutions in question that MBK-Young Poong raised at this extraordinary general meeting were resolutions No. 2 and 3, predicated on the passage of resolution No. 1-1. Resolution No. 1-1 is an amendment to the articles of incorporation for the introduction of the concentrated voting system, while resolutions No. 2 and 3 are proposals for the election of directors contingent upon the approval of resolution No. 1-1.
MBK-Young Poong has argued that the proposal for the election of directors based on the introduction of the concentrated voting system is illegal under Article 382-2, Paragraph 1 of the Commercial Act. This provision states, "Shareholders may demand the election of directors by concentrated voting unless otherwise stipulated in the articles of incorporation."
The entity that filed the request for the election of directors by concentrated voting at this extraordinary general meeting is Yumi Development, a shareholder on Chairman Choi's side. MBK-Young Poong has claimed that since concentrated voting was not permitted in Korea Zinc's articles of incorporation as of last month's 10th, the proposal of that resolution is illegal. It is common for domestic listed companies to exclude concentrated voting by their articles of incorporation. Yumi Development proposed to change those articles to allow for concentrated voting.
The court accepted MBK-Young Poong's arguments. The court stated, "In neither the provisions of Article 382-2 regulating concentrated voting nor Article 542-7 providing exceptions for listed companies is there a provision allowing for concentrated voting claims under the condition that the articles of incorporation exclude concentrated voting. Therefore, such a provision does not exist."
The matter addressed in the affirmed injunction was whether the election of directors based on the premise of introducing a concentrated voting system is lawful. The introduction itself of the concentrated voting system remains addressed as resolution No. 1-1. The change to introduce a concentrated voting system is subject to the so-called '3% rule,' which limits voting rights to 3% of the total issued shares, regardless of how much equity a shareholder possesses, so the proposal may pass at this shareholders' meeting.
However, whether the proposal to introduce the concentrated voting system passes or fails at this shareholders' meeting, the voting for the election of directors must be conducted by simple voting.
There are a total of 14 director candidates recommended by MBK-Young Poong. Since they have already secured MBK-Young Poong's votes, if all shareholders attend the shareholders' meeting, they only need to obtain an additional 3.3% of the voting rights to be elected as directors. However, it is rare for attendance at shareholders' meetings to reach 100%, and therefore, the additional voting rights equity actually required for the election of directors is expected to be lower than 3.3%. This is because ordinary resolutions pass if a majority of attending shareholders vote in favor.
Therefore, arithmetically speaking, it is not impossible for all 14 candidates from MBK-Young Poong to enter the board. However, foreign institutions holding 7% of the overall equity are unlikely to support MBK-Young Poong's complete control of the board. An IB industry source said, "Realistically, won't they only vote in favor of 4 to 7 candidates from MBK-Young Poong?"
In contrast, the seven director candidates from Chairman Choi's side are now at a disadvantage in the voting competition since concentrated voting is no longer possible at this extraordinary general meeting. The voting rights equity held by the Choi family and friendly shareholders is estimated to be around 39%. To enter the board, they must have all minority shareholders (National Pension Service, domestic and foreign institutions, individuals) attend the shareholders' meeting and unanimously cast votes in favor.