Seoul Central District Court ruled that Korea Zinc's restriction of voting rights for major shareholder Youngpoong at the January 2025 extraordinary shareholders meeting was illegal, ordering CEO Park Ki-deok to pay 100 million won in consolation money. The court issued the first-instance judgment on the 10th in a damages lawsuit filed by Youngpoong and Korea Enterprise Investment Holdings against Park. The ruling found Park, as meeting chairman, violated his duty of care by restricting Youngpoong's voting rights based on cross-shareholding rules, determining that Sun Metal Corporation (SMC) — a subsidiary in the ownership chain — qualifies as a limited company under Australian law and is not subject to Korean Commercial Act voting restrictions applicable to joint-stock companies. The case stems from the corporate governance dispute between Korea Zinc management and the Youngpoong-MBK Partners alliance that intensified in 2024.
Seoul Central District Court Rules Voting Restriction Illegal
Seoul Central District Court Civil Division 17 (Presiding Judge Jang Ji-hye) ruled in favor of the plaintiffs in the first-instance damages lawsuit filed by Youngpoong and Korea Enterprise Investment Holdings against Park Ki-deok. The court stated that Park "significantly violated the duty of care that should have been fulfilled as the chairman of the extraordinary shareholders meeting." The ruling requires Park to pay Youngpoong 100 million won in consolation money plus delayed damages.
The January 23, 2025 Korea Zinc extraordinary shareholders meeting was a turning point in the management dispute between Korea Zinc and the Youngpoong-MBK Partners alliance that had continued from the previous year. Korea Zinc Chairman Choi Yoon-beom's side and the Youngpoong-MBK alliance planned to clash over agenda items including cumulative voting and director appointments based on their respective shareholdings. Based on shares secured at the time, the Youngpoong-MBK alliance held an advantage.
One day before the extraordinary shareholders meeting, Chairman Choi's side played the "cross-shareholding restriction" card to reverse the situation. Korea Zinc sold 10.33% of Youngpoong shares held by Youngpoong Precision (now K-Jet Precision) and Chairman Choi's family to Sun Metal Corporation (SMC), a subsidiary controlled by Sun Metal Holdings (SMH), a 100% Korea Zinc-owned Australian entity.
On the day of the extraordinary shareholders meeting, Park restricted Youngpoong's voting rights as chairman. His rationale was that a cross-shareholding loop formed through Korea Zinc-SMH-SMC-Youngpoong, restricting voting rights on the 25.42% Korea Zinc stake held by Youngpoong. Under Korean Commercial Act, if Company A (including subsidiaries and sub-subsidiaries) holds 10% or more of Company B's shares, Company B cannot exercise voting rights on Company A's shares it holds. The Youngpoong-MBK side demanded suspension of the extraordinary shareholders meeting, but Park proceeded with the meeting.
The Youngpoong-MBK side filed the lawsuit arguing that SMC is a limited company under Australian corporate law and not subject to cross-shareholding voting restrictions, and that Park violated Youngpoong's shareholder rights.
Court Determines SMC Classification Under Australian Law
The first-instance court determined that Youngpoong's voting rights could not be restricted based on SMC's Korea Zinc shareholding. The court found that cross-shareholding restrictions under Korean Commercial Act apply only to "joint-stock companies," while SMC is closer to a limited company under Australian corporate law. The court stated: "The defendant's (Park's) act of restricting voting rights at the extraordinary shareholders meeting on the premise that SMC constitutes a subsidiary under Article 369(3) of the Commercial Act is illegal."
The court determined that Park, as extraordinary shareholders meeting chairman and director of SMH and SMC, could have recognized the illegality but still restricted voting rights, violating Youngpoong's shareholder rights. Park served as director of SMC and SMH from July 2022 through the time of the extraordinary shareholders meeting.
The court emphasized Park's duty of care as extraordinary shareholders meeting chairman. The court stated: "Shareholder voting rights constitute a fundamental right of shareholders. Unless otherwise provided by law, they cannot be deprived or restricted by articles of incorporation or shareholders meeting resolution." The court added: "The defendant bears the obligation to carefully review grounds for voting rights restriction and provide Youngpoong with an opportunity for legal review, proceeding in a manner that does not result in illegal voting rights restriction."
The court determined Park abandoned this obligation and conducted proceedings unfavorably to Youngpoong. The court stated: "(The defendant) proceeded with the extraordinary shareholders meeting procedure following only the opinion of Korea Zinc's legal representative. Rather than fulfilling the obligation to prevent shareholder rights violations and proceed fairly, (he) proceeded with the extraordinary shareholders meeting procedure as intended from before the extraordinary shareholders meeting, restricting the voting rights of plaintiff Youngpoong, the largest shareholder who could influence voting, in order to defend the existing management's management rights."
Youngpoong and MBK Partners stated: "This ruling is a judgment in which the court clearly confirmed that acts of artificially restricting the largest shareholder's voting rights on grounds of defending existing management's management rights cannot be permitted, and that management who led such acts bear legal responsibility."
They added: "(The ruling) once again confirmed that the principle of shareholder equality and shareholders' voting rights are the most core rights under corporate law. It presented an important standard that acts violating the largest shareholder's voting rights under the pretext of management rights defense cannot be justified, and has important significance for future corporate governance and shareholder rights protection."
Korea Zinc States Ruling Does Not Affect Current Governance
Korea Zinc stated the ruling has no impact on the company. SMC transferred its Youngpoong shareholding to SMH after the January 2025 extraordinary shareholders meeting. At the regular shareholders meeting held in March of the same year, cross-shareholding voting restriction provisions were applied. The Youngpoong-MBK side filed an injunction in opposition, but the court determined the 2025 regular shareholders meeting proceedings were legal, and the decision was finalized by the Supreme Court in April.
Korea Zinc stated: "This ruling does not deny the legitimacy of Korea Zinc's management rights defense purpose. It is a matter limited to the January 2025 Korea Zinc extraordinary shareholders meeting." The company added: "The injunction application disputing the validity of the January 2025 extraordinary shareholders meeting related to this ruling continues under Supreme Court review. Korea Zinc demonstrated that SMC constitutes a company of the same type as a joint-stock company under Commercial Act and is making efforts to have its legality recognized."
Korea Zinc argued that SMC also constitutes a joint-stock company, and Park's restriction of Youngpoong's voting rights at the January 2025 extraordinary shareholders meeting based on this was legitimate. Korea Zinc stated: "CEO Park applied Commercial Act provisions after careful review regarding the point that SMC constitutes a joint-stock company, and fulfilled the duties that should be fulfilled as shareholders meeting chairman." The company added: "CEO Park's position is to actively have legal legitimacy recognized through appeal of the consolation money payment ruling."
The company emphasized: "Korea Zinc's current management system was established according to the regular shareholders meeting resolution in March last year. Disputes related to the January last year extraordinary shareholders meeting, including this ruling, do not affect Korea Zinc's governance structure or management rights configuration."
FAQ
What did Seoul Central District Court rule regarding Korea Zinc's January 2025 extraordinary shareholders meeting?
Seoul Central District Court ruled on the 10th that Korea Zinc's restriction of Youngpoong's voting rights at the January 2025 extraordinary shareholders meeting was illegal. The court ordered CEO Park Ki-deok to pay Youngpoong 100 million won in consolation money, finding that Park violated his duty of care as meeting chairman by restricting voting rights based on cross-shareholding rules when SMC qualifies as a limited company under Australian law, not subject to Korean Commercial Act restrictions.
Why did the court determine the voting rights restriction was illegal?
The court determined the voting rights restriction was illegal because cross-shareholding restrictions under Korean Commercial Act apply only to joint-stock companies, while Sun Metal Corporation (SMC) is closer to a limited company under Australian corporate law. The court stated Park could have recognized this legal classification as SMC and SMH director, but proceeded to restrict Youngpoong's 25.42% Korea Zinc stake voting rights to defend existing management's control.
How does Korea Zinc respond to the court ruling?
Korea Zinc states the ruling does not affect the company's current governance structure, which was established at the March 2025 regular shareholders meeting. The company maintains that SMC constitutes a joint-stock company under Commercial Act and that Park's actions were legitimate. Korea Zinc indicates CEO Park will appeal the consolation money payment ruling to have legal legitimacy recognized, and notes that Supreme Court review of the extraordinary shareholders meeting validity continues.
