Korea Zinc, which is in a management dispute with Young Poong and MBK Partners, has had its issuance of new shares worth 520 billion won to Hyundai Motor Group's U.S. subsidiary HMG Global ruled invalid by the court. Hyundai Motor has been categorized as an ally of Korea Zinc Chairman Choi Yoon-beom.
The court acknowledged that Korea Zinc's issuance of new shares was necessary for business operations to push new projects, but ruled in favor of the plaintiff Young Poong due to a violation of the articles of incorporation related to the scope of foreign joint ventures. Korea Zinc stated its intention to appeal immediately.
The Civil Division 22 of the Seoul Central District Court (Chief Judge Choi Wook-jin) ruled in favor of Young Poong on the 27th in a lawsuit against Korea Zinc regarding the nullification of the new share issuance. The court declared the issuance of 1,045,430 common shares by Korea Zinc on Sept. 13, 2023, invalid, on the grounds that the issuance of new shares for a foreign joint venture in which Korea Zinc did not participate violated the articles of incorporation.
Korea Zinc carried out a third-party allocation of a paid-in capital increase targeting HMG Global in September 2023. HMG Global is a U.S. corporation established by Hyundai Motor, Kia, and Hyundai Mobis. HMG Global secured 5% equity by acquiring new shares from Korea Zinc.
Young Poong claimed that Chairman Choi Yoon-beom conducted the third-party allocation of a paid-in capital increase not to secure business funding, but to maintain control by acquiring friendly forces. At the time, Jang Hyung-jin, a senior advisor to Young Poong Group, was the largest shareholder of Korea Zinc, and with HMG Global acquiring 5% equity, the friendly equity held by Chairman Choi surpassed that of Advisor Jang.
In its ruling, the court acknowledged Korea Zinc's claim that the new shares were issued due to business necessity. The court stated, "It seems that the new shares were issued for business needs in order to achieve sustainable growth through environmentally friendly new projects. It is difficult to conclude that the new shares were issued solely to strengthen management rights merely because a management dispute exists." The court did not accept Young Poong's argument that the issuance of new shares was to strengthen Chairman Choi's management rights.
However, the court raised concerns about Korea Zinc's issuance of new shares to HMG Global, in which Korea Zinc did not invest. The court concluded that the provision in Korea Zinc's articles of incorporation stating, 'When the company issues new shares to a foreign joint venture for business necessity, it may issue new shares to a third party who is not a shareholder,' presumes Korea Zinc's participation in the foreign joint venture.
The court noted, "Issuing new shares to HMG Global, which Korea Zinc did not participate in as a joint venture, constitutes a serious violation of the articles of incorporation." This means that HMG Global cannot be considered a foreign joint venture under Korea Zinc's articles of incorporation because Korea Zinc did not invest in HMG Global.
With Korea Zinc expressing its intention to appeal, both sides appear poised for continued legal battles. Young Poong expects that if the nullification of the new share issuance is confirmed, the friendly equity percentage held by Chairman Choi's side will decrease. After the first ruling, Young Poong stated, "This ruling will serve as an important precedent for corporate governance and shareholder rights protection."
Since the court recognized that the issuance of new shares was due to business necessity, Korea Zinc stated it would clarify the intent and meaning of the articles of incorporation related to foreign joint ventures in the appeals trial.
Korea Zinc believes that even if the nullification of the new share issuance is confirmed and Hyundai's equity disappears, it will not have a significant impact on management rights. Hyundai did not exercise its voting rights at the Korea Zinc shareholders' meetings in January and March. Korea Zinc's stance is that Young Poong's claim that HMG Global represents friendly equity for Chairman Choi is incorrect. Hyundai is also not participating in Korea Zinc's board of directors.