On the 28th, the court decided on the 27th that Young Poong could not exercise voting rights on the shares held by it during the Korea Zinc regular shareholders' meeting. According to this decision, Young Poong's 25.42% equity, held solely by Young Poong out of the 40.97% equity held by Young Poong and MBK Partners in Korea Zinc, could not be exercised.
On that day, the Seoul Central District Court's Civil Division 50 (Chief Judge Kim Sang-hoon) rejected Young Poong's application for a 'provisional injunction to permit exercise of voting rights' against Korea Zinc.
The court noted, 'Korea Zinc’s Australian subsidiary SMH, which holds 190,000 shares of Young Poong, is a foreign entity established under Australian law but has the characteristics of a corporation, so Article 369-3 of the Commercial Act (cross-shareholding restrictions) can be applied.' Cross-shareholding restrictions prevent two companies from exercising voting rights if they hold more than 10% equity in each other.
Currently, Korea Zinc's equity held by Chairman Choi is 34.35%, and Young Poong and MBK Partners hold 40.97%. However, due to the court's decision, Young Poong cannot exercise voting rights on the 25.42% of Korea Zinc shares it holds. Despite holding a lower actual equity percentage, Chairman Choi's side gained an advantage in the shareholders' meeting.
The reason this was made possible is that Chairman Choi's side created a previously nonexistent cross-shareholding relationship with Young Poong. Although Young Poong holds more than 10% of Korea Zinc shares, Korea Zinc does not hold more than 10% equity in Young Poong.
However, on January 22nd, Korea Zinc transferred 190,226 shares of Young Poong (10.33% equity) held by Young Poong Precision Corporation and others to its Australian affiliate SMC. The next day (23rd), it restricted Young Poong's voting rights at the Korea Zinc shareholders' meeting. As a result, the proposals from Chairman Choi's side were all passed at the shareholders' meeting.
Young Poong filed for a 'provisional injunction to suspend the effectiveness of the shareholders' meeting resolution' with the court, and on the 7th, the court sided with Young Poong. The court said that SMC is not a corporation but a limited company, so the cross-shareholding regulations of the Commercial Act do not apply.
Then, on the 12th, Korea Zinc transferred Young Poong shares to SMH, the parent company of SMC. SMH has the nature of a corporation under commercial law, unlike SMC, so the cross-shareholding restrictions were applied.
On that day, the court accepted Korea Zinc's argument. The court stated, 'SMH has the essential characteristics of a corporation.' It further stated that 'even if there are very minor institutional differences pointed out by Young Poong, SMH's legal nature can be viewed as that of a corporation.'
However, it remains uncertain whether Korea Zinc can continue to restrict Young Poong's voting rights. This is because Young Poong established the limited company YPC by fully contributing its Korea Zinc shares as in-kind contributions on the 7th. In this case, the circular shareholding structure does not exist, so the argument from MBK and Young Poong is that voting rights will not be restricted. The upcoming regular shareholders' meeting will confirm voting rights based on last year's year-end shareholding, so the court did not consider the establishment of YPC.