Young Poong, the largest shareholder of Korea Zinc, reported the current and former directors of Korea Zinc and its 100% subsidiary in Australia, Sun Metals Corporation (SMC), to the Fair Trade Commission on the 31st on charges of violating fair trade laws.
Young Poong and MBK Partners issued a statement on the same day, noting that "the chairman Choi's cornered side created an illegal investment structure that directly violates the legislative intent of restricting mutual investments to limit Young Poong's voting rights in Korea Zinc," adding that they reported Korea Zinc, chairman Choi Yun-beom, the president Park Ki-deok, CEO Lee Sung-chae, and CFO Choi Ju-won of Sun Metals Corporation (SMC) for violating the mutual investment prohibition and illegal behavior under the fair trade law.
On the afternoon of the 22nd, the day before the Korea Zinc extraordinary general meeting, SMC suddenly announced that it had acquired 10.33% of Young Poong's shares held by the Choi family for 57.5 billion won. As Young Poong already held 25.42% of Korea Zinc's shares and Korea Zinc also acquired shares of Young Poong, chairman Choi's side stipulated that Young Poong could not exercise its voting rights concerning Korea Zinc. This is because Article 369, Paragraph 3 of the Commercial Act restricts voting rights if both companies hold more than 10% of each other's shares. With Young Poong's voting rights blocked, this general meeting ended in an overwhelming victory for chairman Choi's side.
Young Poong-MBK claimed that "the acquisition of Young Poong shares made in the name of SMC, which is a 100% controlling company of Korea Zinc, upon the directive of chairman Choi, constitutes an illegal act aimed at evading mutual investment restrictions among corporations prohibited by Article 21 of the fair trade law (due to mutual investment prohibition as stated in Article 36, Paragraph 1)," arguing that "SMC operates zinc refining in Australia and holds cash assets relying on Korea Zinc's payment guarantees, acquiring shares of Young Poong in its own name without any incentive for acquisition using borrowed funds."
The type of 'illegal behavior' defined by the fair trade law includes the act of acquiring or owning shares of a subsidiary company (Young Poong), which owns shares of its own stocks (Korea Zinc), utilizing another's name (SMC) to acquire or own them at the expense of itself (Korea Zinc).
Young Poong-MBK emphasized, "According to the legal circles, since the mutual investment restriction system was introduced, such blatant illegal acts evading the system have not occurred even once," indicating that "this implies that companies belonging to the mutual investment restriction system are deeply aware of the severity of the regulation."
It was added that "this unprecedented regulatory evasion was attempted as the final means to maintain the unfair dominance over Korea Zinc by chairman Choi's side, which faced the crisis of failure to appoint directors through cumulative voting due to the disadvantage of equity."
Young Poong-MBK, quoting individuals from the legal community, stated that "the illegal behavior of chairman Choi's side constitutes the first major incident that has formed a new circular investment chain using overseas subsidiaries since the introduction of regulations prohibiting new circular investments in 2014," adding that "if an immediate and stringent investigation is not conducted regarding such illegal acts, similar illegal behaviors regarding mutual investment restrictions could occur frequently in the future, potentially destabilizing the foundation of corporate group regulations."