This article was published on Feb. 3, 2025, at 5:24 p.m. on the ChosunBiz MoneyMove site.
As some corporations face disputes over management rights at the beginning of the year, analyses suggest that the role of the chairperson overseeing the shareholders' meeting will become increasingly important. This is because the 'restriction of voting rights' by the chairperson, as seen in the recent temporary shareholders' meeting of Korea Zinc, can be a powerful weapon.
The restriction of voting rights by the chairperson often occurs in smaller listed companies. In fact, there have been cases where the current management, serving as chairperson in other shareholders' meetings, has restricted the voting rights of minority shareholders, leading to legal disputes.
According to investment banking (IB) and legal sources on the 3rd, the coalition of Young Poong, the largest shareholder of Korea Zinc, and MBK Partners filed for a provisional injunction against the effectiveness of the shareholders' meeting resolution at the Seoul Central District Court on Jan. 31. This was on the grounds that Korea Zinc President Park Ki-deok, who chaired the extraordinary shareholders' meeting, unlawfully restricted Young Poong's voting rights, thus necessitating a swift suspension of the resolution's effectiveness.
At the extraordinary shareholders' meeting on Jan. 23, Young Poong was completely restricted from exercising its voting rights and could not cast a single vote. With Young Poong's equity stake tied up at 29%, the voting rights available to the Young Poong-MBK coalition were significantly reduced to 27.3% held by MBK. The percentage of voting rights exercised by MBK was originally lower, but with Young Poong's absence, the denominator decreased, resulting in an increase in MBK's equity percentage.
The reason Young Poong was unable to take any action at that extraordinary shareholders' meeting is that Chairman Choi's side created a structure for 'restriction of voting rights due to mutual shareholding.' Korea Zinc's Australian subsidiary acquired 10.33% of Young Poong's equity, leading to a situation where Korea Zinc and Young Poong each held over 10% of the other's shares. Article 369, Section 3 of the Commercial Act restricts the exercise of voting rights against the counterpart company in this case.
In fact, from the start of the extraordinary shareholders' meeting, there was much noise regarding the chairperson's management style. It was originally scheduled to begin at 9 a.m., but the opening was continually delayed due to a 'duplicate proxy' issue. This was because some shareholders delegated their voting rights to both Chairman Choi's side and the Young Poong-MBK coalition, necessitating a confirmation process.
President Park finally made the opening declaration just before 2 p.m., but the company had not properly announced the number of shares held by attending shareholders by that point. In response, the MBK side criticized Park for dragging out the time while waiting for shareholders who would vote in favor.
In a management dispute like this, the side holding the gavel at the shareholders' meeting can become the 'super boss' as it possesses the formidable weapon of 'restriction of voting rights.' For this reason, when Young Poong-MBK filed for this extraordinary shareholders' meeting of Korea Zinc, the company's management accepted the filing even before the court ruling came out. When the board of directors accepts the filing and convenes the shareholders' meeting, the chairperson is appointed according to the articles of incorporation, with the CEO or a board member designated by them typically taking on the role. If Korea Zinc had refused the request to convene the extraordinary shareholders' meeting until the end, Young Poong-MBK could have appointed the chairperson depending on the court's decision.
The controversy surrounding the restriction of voting rights by the chairperson often occurs in smaller listed companies. In fact, there have been several cases, some of which received 'null' judgments in court.
A notable case is Manho Rope & Wire, which is listed on the securities market. At the shareholders' meeting in 2023, the second largest shareholder, MK Asset, restricted voting rights, claiming a violation of the obligation to report major shareholdings (over 5%). The second largest shareholder's side filed a lawsuit for resolution cancellation, and the result came out in September of last year, taking a year due to the case proceeding to the main lawsuit. The first instance court sided with the second largest shareholder.
The obligation to report major shareholdings is a system requiring companies with over 5% shareholdings to disclose their equity holding and changes, as well as their holding intentions. This obligation also applies if the combined equity percentage of shareholders who 'jointly hold' shares exceeds 5%.
An industry insider noted, 'Even an informal agreement among minority shareholders to 'exercise voting rights together this time' can be recognized as joint holders, which means minority shareholders must be especially careful not to fall under the obligation to report major shareholdings.'
YM, a KOSDAQ-listed company, also limited the voting rights of shareholders who submitted proxies gathered through the small shareholder platform Act, despite the small shareholders' equity reaching 47%. The management, holding about 28% of the shares, emerged victorious. The management of YM also claimed that minority shareholders violated the obligation to report major shareholdings. In response, minority shareholders have filed a lawsuit for the invalidation of the shareholders' meeting resolution.
The industry believes that as long as the current management holds the chairperson position at shareholders' meetings, such issues will inevitably continue to recur. The upcoming regular shareholders' meeting of T'way Air in March, where a 'vote contest' is anticipated, also leaves uncertainty regarding how the YeaRimDang side holding the gavel will proceed.
In this regard, the Korea Corporate Governance Forum noted in a commentary that 'the shareholders' meeting of Korea Zinc was somewhat predictable as President Park Ki-deok, an inside director, served as chairperson.' It further stated, 'According to global standards, the chairperson of the shareholders' meeting should be an independent director rather than the CEO or chairman. It is abnormal for a party that could potentially gain or lose benefits to serve as the chairperson of an extraordinary shareholders' meeting.'