The Fair Trade Commission has launched an investigation into allegations of circular investment involving Korea Zinc's overseas affiliates. The commission is expected to focus on whether Korea Zinc established a circular investment structure to circumvent domestic fair trade laws.
According to industry sources on the 11th, the Fair Trade Commission notified MBK Partners and Young Poong of the commencement of a review procedure regarding the 'illegal activities related to Korea Zinc.' This notification comes about a month after MBK and Young Poong submitted a report alleging violations of fair trade laws against Choi Yoon-beom, the chairman of Korea Zinc, at the end of January.
MBK and Young Poong claimed in their report that Chairman Choi formed a new circular investment structure prohibited under Korean fair trade law by using overseas affiliates. While new circular investments are banned domestically, they asserted that the relevant regulations were circumvented by creating an investment structure through foreign corporations.
The disputed investment structure was formed in the following manner: Korea Zinc invested in its subsidiary Sunmetal Holdings (SMH), SMH invested in its Australian subsidiary Sunmetal Corporation (SMC), and SMC acquired a 10.3% equity stake in Young Poong. MBK and Young Poong argued that this structure ultimately created a circular investment chain of 'Korea Zinc → SMH → SMC → Young Poong → Korea Zinc,' which served as a basis for restricting Korea Zinc's voting rights in Young Poong.
In this investigation, the Fair Trade Commission plans to review potential violations of Article 21 (prohibition of mutual investments), Article 36, Paragraph 1 (prohibition of corporate group regulation evasion), and Enforcement Decree Article 42, Clause 4 (provisions against illegal mutual investments).
If the Fair Trade Commission's examination confirms a legal violation, measures such as warnings, corrective actions, penalties, and prosecution may be imposed. However, since there has not been a clear case defined under existing fair trade laws for circular investments utilizing overseas affiliates, there are concerns that new legal interpretations may be applied based on the investigation results.
Meanwhile, regarding this matter, the court partially accepted Young Poong's request for a provisional injunction. The Seoul Central District Court's Civil Division 50, presided over by Chief Judge Kim Sang-hoon, partially approved Young Poong's application to suspend the effects of Korea Zinc's extraordinary general meeting, halting specific board member appointments and agenda items concerning Chairman Choi.
MBK and Young Poong announced on the 7th that Young Poong would make an in-kind investment of its 25.4% equity stake in Korea Zinc into a newly established limited liability corporation, YPC. This action is interpreted as a measure to block the circular investment loop created by Korea Zinc using SMC, and it is seen as a strategy by the Young Poong-MBK side to neutralize the mutual investment restriction.