The Supreme Court ruled that the measure by Korea Zinc to restrict the voting rights of its largest shareholder, Young Poong, by using its Australian affiliate Sun Metals Corporation (SMC), was unlawful.
According to legal sources on the 31st, the Supreme Court on the 28th upheld the lower court's finding in a case over voting rights between Korea Zinc and Young Poong that SMC cannot be viewed as a subsidiary under the Commercial Act.
The issue was whether Korea Zinc's restriction of the voting rights attached to Korea Zinc shares held by Young Poong at an extraordinary shareholders meeting in Jan. last year was lawful. Korea Zinc applied the Commercial Act's cross-shareholding voting rights restriction on the grounds that its Australian affiliate SMC holds Young Poong's equity in Korea Zinc.
Article 369, Paragraph 3 of the Commercial Act provides that "if a company, its parent company, and its subsidiary, or a subsidiary, holds more than one-tenth of the total number of issued shares of another company, the shares of the company or the parent company held by that other company have no voting rights."
For this provision to apply, the company holding the shares must fall under a "subsidiary" as defined by the law. Korea Zinc treated SMC as a subsidiary and used this clause as the basis to restrict Young Poong's voting rights, but the court found that SMC cannot be regarded as a subsidiary under the Commercial Act.
The ruling is also tied to the circular shareholding structure Korea Zinc built using overseas affiliates. The Korea Fair Trade Commission is reviewing whether Korea Zinc's formation of a circular shareholding structure using overseas affiliates such as SMC and Sun Metals Holdings (SMH) constitutes an evasive act under the Fair Trade Act. The review report has been completed, and a full commission deliberation is reportedly pending.
Young Poong and MBK Partners said, "This Supreme Court decision is meaningful in that it delivers a judicial judgment on the act of restricting shareholder rights in the process of defending management control using overseas affiliates," adding, "The need to form an audit committee independent from management at the extraordinary shareholders meeting in Sept. has grown even greater."