Korea Zinc Wins Appeal Over ₩520 Billion Capital Increase... Strikes Back a Day After 'AGM Cancellation'

[Financial News] Korea Zinc won an appeal against the Youngpoong Corporation–MBK Partners alliance in a case over the validity of a third-party allotment capital increase worth about 520 billion won that it issued to HMG Global, an overseas affiliate of Hyundai Motor Group. The previous day, Korea Zinc had lost a lawsuit seeking to overturn resolutions passed at its annual general meeting, but on this day it reversed the original first-instance ruling in a case over a key block of friendly shares.
A three-judge panel of the Seoul High Court's Civil Division 18-3 (High Court Judges Jin Hyeon-min, Wang Jeong-uk and Park Seon-jun) on the afternoon of the 13th overturned a lower court ruling in favor of the plaintiff and dismissed the plaintiff's claim in an appeal hearing on Youngpoong's lawsuit against Korea Zinc seeking confirmation that the issuance of new shares was invalid.
The panel ruled, "The issuance of new shares in this case was carried out in accordance with the articles of incorporation and within the scope necessary to achieve the company's business objectives, so it cannot be deemed invalid."
In August 2023, Korea Zinc carried out a third-party allotment capital increase targeting HMG Global, a U.S.-based entity established through joint investment by Hyundai Motor Company, Kia and Hyundai Mobis, issuing 1,045,430 new shares. The shares were worth about 527.2 billion won, equivalent to a 5% stake. At the time, Korea Zinc cited a provision in its articles of incorporation stating that "when new shares are issued to a foreign joint venture for business purposes, they may be allotted to persons other than shareholders."
Youngpoong, which filed suit in response, argued that the purpose of the share issuance was to maintain and expand the existing management's control. In June last year, the first-instance court recognized the "business necessity" but rejected Korea Zinc's arguments concerning its articles of incorporation, ruling in favor of Youngpoong.
By contrast, the appellate court on this day reversed the first-instance ruling, finding that the articles of incorporation had been properly interpreted and that the issuance of new shares was lawful. With this ruling, the side of Korea Zinc Chairman Choi Yun-beom preserved the roughly 5% stake held by Hyundai Motor Group, a key pillar of its defense of control.
Meanwhile, the previous day, the 12th, the court ruled that resolutions passed at the regular shareholders' meeting held by Korea Zinc's side in March last year be canceled, after Youngpoong's voting rights had been blocked on the basis of restrictions on cross-shareholdings. The court applied a strict legal standard to the direct restriction of voting rights, a key shareholder right, while on this day recognizing the issuance of new shares through a third-party allotment for business cooperation and, in effect, allowing the company broad discretion in its business decisions.
However, uncertainty over control of the board remains. The resolutions the court ordered canceled the previous day included the appointment of directors aligned with Chairman Choi. If the Youngpoong Corporation–MBK Partners alliance later seeks an injunction suspending those directors from performing their duties and the court grants it, the balance of power on the board could shift.

[email protected] Lee Chang-hoon Reporter