Youngpoong, MBK Lose First-Instance Shareholder Derivative Suit Against Korea Zinc; Choi Yun-beom-Led Board Holds Its Own

[Financial News] Youngpoong and MBK Partners lost a shareholder derivative lawsuit seeking damages over Korea Zinc’s resolution to launch a counter-tender offer for its own shares. The court ruled that the board’s decision at the time to acquire treasury shares fell within the scope of managerial discretion and found no violation of the Commercial Act, the company’s articles of incorporation or other rules.
On the 22nd, the 30th Civil Division of the Seoul Central District Court, presided over by Presiding Judge Kim Seok-beom, ruled against the plaintiffs, dismissing all claims by Youngpoong and MBK in a damages lawsuit Youngpoong had brought against 10 Korea Zinc directors, including Chairman Choi Yun-beom.
On September 13, 2024, Youngpoong teamed up with MBK Partners and launched a tender offer for Korea Zinc shares at 830,000 won per share. In response, the Korea Zinc board, including Chairman Choi, resolved on October 2 that year to launch a counter-tender offer to acquire the company’s own shares at 890,000 won per share, sparking a conflict.
Youngpoong’s side filed the shareholder derivative lawsuit, arguing that the resolution was intended solely to preserve management’s positions and thus breached the duties of care and loyalty. It also argued that using a special-purpose discretionary reserve based solely on a board resolution violated the acquisition limit under the Commercial Act and the company’s articles of incorporation.
The court fully rejected Youngpoong’s claims that the board had breached its duties of care and loyalty. It stated, “Directors have discretion to make business decisions,” and set out the principle that “directors are not liable for damages if they make a business decision without violating laws or regulations, after sufficiently gathering, investigating and reviewing reasonably available information, in the belief that the decision serves the company’s best interests, and the decision is not manifestly unreasonable.”
The court took particular account of the fact that the directors had sought outside legal advice in advance and carefully reviewed court rulings on applications for provisional injunctions before making their decision based on pricing terms that included a premium of a certain percentage and on financing plans.
Youngpoong’s side argued that using a special-purpose discretionary reserve accumulated pursuant to a shareholders’ meeting resolution to acquire treasury shares violated the Commercial Act provision limiting the acquisition price of treasury shares and the company’s articles of incorporation, but the court ruled otherwise.
The court ruled that “the limit on the acquisition price of treasury shares merely restricts the ‘total value’ of shares that may be acquired in accounting terms,” and that “the identity of the item supplying the funds used to acquire the shares cannot be the basis for arguing that the provision was violated.” It also found that the special-purpose discretionary reserve cited by Youngpoong was not among the restricted items listed in the relevant provision of the Commercial Act, so using it as a source of funds for the acquisition could not constitute a violation of law.
Regarding Korea Zinc’s articles of incorporation, the court also rejected the claim of a violation, stating, “Although the target company’s articles of incorporation prohibit the use of a special-purpose discretionary reserve as a source of funds for interim dividends, this provision cannot be applied by analogy to the acquisition of treasury shares.”
With this ruling, the current Korea Zinc board, including Chairman Choi Yun-beom, has won the court’s recognition of the procedural legality of its counter-tender offer for treasury shares and the legitimacy of its business decisions.
[email protected] Chang-hun Lee Reporter