Supreme Court rules Korea Zinc's SMC-based restriction of Young Poong's voting rights 'unlawful'

The Supreme Court upheld a lower court ruling that Korea Zinc unlawfully restricted the voting rights of its largest shareholder, Young Poong, in a decision that could affect the fair trade watchdog's ongoing review of the smelter, observers said Monday.

In a ruling issued Friday, the Supreme Court upheld the lower court's finding that Sun Metals Corp. (SMC), Korea Zinc's Australian affiliate, does not qualify as a subsidiary under the Korean Commercial Act.

The top court found no error in the lower court's conclusion that SMC cannot be regarded as the same as, or most similar to, a stock company under Korean law.

The dispute centers on Korea Zinc's use of SMC ahead of its extraordinary shareholders meeting in January 2025. Shortly before the meeting, SMC acquired about 10 percent of Young Poong's shares. Korea Zinc then argued that the resulting cross-shareholding relationship allowed it to restrict Young Poong's voting rights at the meeting.

The court's ruling effectively rejected the legal basis for that move, Young Poong and MBK Partners said.

The alliance described the decision as a "judicial check" on Korea Zinc Chairman Choi Yun-beom's attempt to use the company and its affiliate structure for "entrenchment purposes."

"The decision is also significant because it is closely connected to the Fair Trade Commission's (FTC) ongoing review of Korea Zinc's overseas affiliate-based circular shareholding structure," the alliance said in a statement.

The FTC has recently completed its examiner's report on whether Korea Zinc's use of SMC and other overseas affiliates constituted an unlawful circumvention under the Monopoly Regulation and Fair Trade Act. The case is awaiting review by the full commission.

Young Poong and MBK also linked the ruling to Korea Zinc's upcoming extraordinary general meeting on Sept. 9, saying it underscores the need to elect an audit committee member independent from management.

The alliance described the upcoming meeting as an "opportunity to break this cycle by establishing an audit committee that is independent from management."

Meanwhile, the Korea Institute of Corporate Governance and Sustainability, one of Korea's leading corporate governance and environment, social and governance advisory bodies, recommended that shareholders vote in favor of Park Yoo-kyung, a candidate backed by the MBK Partners-Young Poong alliance, for an audit committee seat at the upcoming shareholders meeting.

"Park is well qualified to independently oversee management decisions involving the use of corporate funds and major investments, based on her independent judgment and professional expertise," the institute said in a report released Friday.