This article was displayed on the ChosunBiz MoneyMove (MM) site on Feb. 24, 2025, at 4:58 p.m.
Korea Zinc is undergoing an external audit to prepare its financial statements for the fiscal year 2024, and it is reported that the external auditor is reviewing several matters during the fieldwork stage. Among them is whether the purpose of some funds disbursed by Korea Zinc should be considered for the purpose of management rights defense.
The external auditor plans to finalize the audit report after conducting internal deliberations once the fieldwork is complete. According to external audit law, the auditor must submit the audit report at least one week before the regular shareholders' meeting.
According to the investment banking (IB) industry on the 24th, Samil PwC is reportedly contemplating how to handle some expense expenditure items during the accounting audit of Korea Zinc for the fiscal year 2024.
According to the Financial Supervisory Service's electronic disclosure system, Korea Zinc's commission expenses for the third quarter of last year amounted to 28.1 billion won, three times the previous quarter's 9.7 billion won. The commission expenses included legal advisory fees, litigation costs, and promotional expenses. Since the management rights dispute with MBK-Young Poong intensified in September, Korea Zinc has been responding by appointing Kim & Chang Law Office, Hwawoo Law Firm, and Yulchon Law Firm.
The MBK-Young Poong side is raising issues regarding the litigation costs that were borne by Korea Zinc in relation to the shareholder proposal for the introduction of a cumulative voting system by Yu Mi Development, a shareholder of Chairman Choi's side. Yu Mi Development proposed the amendment of the articles of incorporation for the introduction of a cumulative voting system as an agenda item for an extraordinary shareholders' meeting at the end of last year, and MBK-Young Poong filed for a provisional injunction, stating that "the proposal for the appointment of directors based on the assumption of the cumulative voting system passing is illegal." In response, Korea Zinc countered through Kim & Chang Law Office, stating, "Since the opposing side filed for a provisional injunction against Korea Zinc, it is naturally Korea Zinc's duty to respond."
Moreover, the fact that Korea Zinc's subsidiary, Sun Metal Corporation (SMC), acquired Young Poong stocks on the 22nd of last month, ultimately restricting Young Poong's voting rights, is claimed by MBK-Young Poong to be a strategy that Korea Zinc has prepared since last year, suggesting that the expenses incurred by Korea Zinc for this matter could also be problematic.
An accountant from a mid-sized accounting firm said, "When a company prepares its financial statements and brings them to the external auditor, the audit team initially makes a judgment, and then it is submitted to the internal deliberation room for approval on whether it is a matter that can be approved."
This accountant noted, "If the amount that appears to be spent on management rights defense is excessively large compared to assets or market capitalization, or if it has caused harm to the company or minority shareholders, or if the intention is deemed impure, there is a possibility of it becoming an issue."
Korea Zinc's operating profit for the third quarter of last year amounted to 603.2 billion won. The commission expenses correspond to 4.6% of the operating profit.
There are also opposing views. The principle of materiality states that the categories and amounts in accounting processing and financial statement preparation should be determined through practical methods according to their importance.
Another accountant said, "Even if the pure purpose of the expense expenditure was to defend against hostile mergers and acquisitions, if the incurred expenditures align with some transaction, they may simply be considered as company expenses. If there was a seemingly 'different purpose' and that purpose was reasonable, it may not necessarily be judged as management rights defense."
MBK-Young Poong stated on the 17th that they requested the accounting firm responsible for the external audit of Korea Zinc to specify in the audit report whether the expenses attributed to Chairman Choi or related executives and directors were borne by the company as defense costs.