Korea Zinc asserted that there is no problem in proposing a board resolution through the cumulative voting system, as there is already a precedent. The argument made by Chairman Choi Yoon-beom's side, who proposed the director appointment agenda using the cumulative voting system, counters the claims made by MBK Partners and Youngpoong regarding legal defects.
On the 23rd, the Korea Zinc board resolved the 'agenda for amending the articles of association for the introduction of the cumulative voting system (shareholder proposal)' proposed by shareholder Yumi Development, and the 'agenda for the appointment of directors through cumulative voting,' based on the approval of this agenda. Yumi Development is a company owned by Chairman Choi Yoon-beom's family.
The cumulative voting system allows each shareholder to receive as many votes as there are director candidates, which can be concentrated on specific candidates when appointing directors. Chairman Choi Yoon-beom's side has fragmented their equity due to friendly shares and special relationships, and using this system would allow them to increase voting power against the largest shareholders, MBK and Youngpoong.
On the 24th, MBK and Youngpoong issued a statement stating, "The content suggested by Yumi Development as an agenda for Korea Zinc's extraordinary shareholders' meeting next month violates the Commercial Act and the Capital Markets Act." The Commercial Act stipulates that requests for the appointment of directors through cumulative voting must be made at least six weeks before the shareholders' meeting, and Yumi Development did not adhere to this deadline, among other reasons.
However, Korea Zinc refuted that since Yumi Development proposed the amendment to the articles of association on the 10th, which was six weeks prior, and based on various precedents, there is no procedural issue with the shareholder proposal based on an amendment to the articles of incorporation.
According to Korea Zinc, many in the legal community interpret that making a shareholder proposal based on a modified articles of association, contingent upon its approval at the shareholders’ meeting, is permissible. This is because the amended articles of association take effect immediately once the agenda for changing them is passed at the shareholders’ meeting.
For example, at the extraordinary shareholders' meeting of Company H on the 28th of last month, an agenda item was put forth to appoint 2 additional directors, premised on the approval of an amendment to expand the cap on the number of directors from 9 out of 10 already appointed. In the case of Company HJ, which held its regular shareholders’ meeting on March 25, 2021, it was similar, as 3 additional directors were proposed based on the approval of an amendment to increase the cap on the maximum number of directors from 8 out of 8 already appointed. Similarly, on November 23, 2018, at Company S's extraordinary shareholders' meeting, an agenda item was put forth to appoint 5 directors and 4 through shareholder proposals, conditioned on the approval of an amendment to increase the cap on the number of directors from 6 out of 8 already appointed.
Korea Zinc argued, based on the judgments of many in the legal community, that there is no provision in Article 542-7 and Article 382-2 of the Commercial Act stating that shareholders can only make cumulative voting requests for companies that do not exclude the cumulative voting system in their articles of association, adding, "Thus, there is no reason to view conditional cumulative voting requests differently from other conditional shareholder proposals."
Korea Zinc also refuted MBK and Youngpoong's claim that Yumi Development did not meet the deadline for the proposal. Korea Zinc stated, "The provision that shareholder proposals must be submitted at least six weeks before the shareholders' meeting is to ensure that the company has adequate time to prepare for the meeting, including receiving proposal requests and preparing notices and other agenda items," explaining that Article 542-7 of the Commercial Act imposes the same six-week limitation on cumulative voting requests.
Korea Zinc noted, "Yumi Development's shareholder proposal aligns with this premise as it was notified on December 10, which is six weeks before the extraordinary shareholders' meeting, and there are no procedural issues," adding, "The claim by MBK and Youngpoong that it causes unforeseen harm to other shareholders is unconvincing." They further stated, "The cases of Companies H, HJ, and S also fall under instances where conditional agenda items were proposed based on the assumption that amendments to the articles of association would be approved six weeks prior."