In the closely watched management control dispute between Korea Zinc (010130) and Young Poong (000670), one of the more unexpected developments was Korea Zinc's move to strip Young Poong of its voting rights. Young Poong was a major shareholder holding about 25% of Korea Zinc. Yet because an Australian affiliate on the Korea Zinc side had secured more than 10% of Young Poong's shares, Korea Zinc blocked Young Poong from exercising the voting rights attached to that roughly 25% stake at its shareholder meeting. Buying up the other side's shares to neutralize the other side's votes was a defense tactic unfamiliar to ordinary investors and difficult to anticipate.
A series of Supreme Court decisions this year addressed whether that restriction was lawful. In a decision on April 2, 2026, the Supreme Court upheld a lower court ruling that the restriction imposed on Young Poong's voting rights at Korea Zinc's annual shareholder meeting in March 2025 was lawful. But in a decision on Aug. 28, 2026, the court accepted the lower court's central finding that the restriction imposed earlier, at the extraordinary shareholder meeting in January 2025, was unlawful. The same provision of the Commercial Act was at issue in the same dispute, yet the outcomes diverged. Did the Supreme Court reverse itself?
There is an even more intriguing detail. On the morning of the March 2025 annual meeting, an Australian subsidiary on the Korea Zinc side acquired an additional 1,350 Young Poong shares — and that purchase determined whether Young Poong could vote the roughly 25% stake in Korea Zinc it had held on the meeting's record date. How could a share purchase that looks so small by volume produce such a large effect? Answering that requires first understanding the unfamiliar 10% cross-shareholding rule.
Buying the Other Side's Shares to Limit Its Votes
The basic principle of a stock corporation is one share, one vote. But owning shares does not always mean being able to cast that many votes. Treasury shares held by a company carry no voting rights, and the same applies to cross-held shares that meet certain conditions.
When two companies each hold shares in the other, those holdings are called cross-shareholdings. The Commercial Act regulates not only such direct cross-holdings but also, under certain conditions, cases in which a subsidiary of one company holds shares in the other. To make sense of the Korea Zinc case, consider a simple example.
Suppose Company B holds 25% of Company A. Company C, a domestic stock corporation wholly owned by Company A, then acquires more than 10% of Company B's total outstanding shares. In that case, the voting rights on the Company A shares held by Company B are restricted. The crucial point is that it is not merely a portion of Company B's holdings in Company A that loses voting rights. The entire 25% stake held by Company B loses its voting rights. The 10% figure is not the share of voting rights that gets restricted; it is the threshold that triggers the restriction.
Losing voting rights does not mean losing ownership of the shares. Rights such as the right to receive dividends remain, but the shares cannot be voted at a shareholder meeting.
Why does such a provision exist? When two companies hold each other's shares, or hold the other's shares through a subsidiary, management can influence how the other company's voting rights are exercised. That creates a risk of exercising control disproportionate to the actual capital contributed, or of distorting shareholder meetings and corporate governance by mutually backing each other's management. To prevent these harms, the Commercial Act has restricted voting rights on cross-held shares since 1984. In the Korea Zinc-Young Poong dispute, a system designed to prevent distortions of corporate control also functioned as a powerful defense against a takeover.
The restriction also affects quorum calculations. Under Article 371 of the Commercial Act, cross-held shares whose voting rights are restricted are excluded from the total outstanding shares used in counting shareholder resolutions. So the effect goes beyond removing the other side's votes: the number of votes required to amend the articles of incorporation or to elect directors can also change. That is why this provision draws attention in management control disputes.
The Same Dispute, So Why Different Outcomes?
One day before Korea Zinc's extraordinary shareholder meeting on Jan. 23, 2025, SMC, an Australian second-tier subsidiary on the Korea Zinc side, acquired 190,226 Young Poong shares, or 10.33% of Young Poong's total outstanding shares. At the time, Korea Zinc held all shares of its Australian subsidiary SMH, and SMH held all shares of SMC. Korea Zinc argued that this created an ownership chain running Korea Zinc → SMH → SMC → Young Poong → Korea Zinc, and restricted Young Poong's voting rights at the extraordinary meeting. Injunction litigation followed over several amendments to the articles of incorporation and the election of directors.
But the courts did not look only at whether the stake exceeded 10%. They examined what kind of company SMC, the actual acquirer of the Young Poong shares, was. SMC was a "Pty Ltd" under Australian law. Weighing the degree of restriction on share transfers, limits on the number of shareholders and the possibility of listing, the courts found that it more closely resembled a limited liability company than a stock corporation under Korea's Commercial Act. Article 369(3) of the Commercial Act governs stock corporations, and the subsidiary referred to in that provision likewise presupposes a stock corporation. The Supreme Court held that a foreign company can qualify as a subsidiary under Article 369(3), but only if it is of the same type as, or most closely resembles, a stock corporation under Korea's Commercial Act.
The courts therefore concluded that even though SMC had secured 10.33% of Young Poong, it could not trigger a restriction on the voting rights attached to Young Poong's Korea Zinc shares so long as it failed to meet that requirement. On Aug. 28, 2026, the Supreme Court accepted the lower court's finding on this point. For reference, the Supreme Court did quash part of the lower court's ruling in this case, but that was because the related applications had been withdrawn or had lost their standing due to subsequent resolutions — not because the court overturned the lower court's core legal reasoning on cross-shareholding voting restrictions.
At Korea Zinc's annual shareholder meeting on March 28, 2025, by contrast, the outcome was different. SMC, which had acquired the Young Poong shares in January, distributed all of them in kind to its parent, SMH, on March 12. The company holding the 190,226 Young Poong shares had changed. SMH was a "Public Ltd" under Australian law. The courts found that this company was of the same type as, or most closely resembled, a stock corporation under Korea's Commercial Act. On April 2, 2026, the Supreme Court accepted that finding and upheld the lower court's conclusion that the restriction on Young Poong's voting rights at the March annual meeting was lawful.
In the same dispute, a 10.33% stake in January failed to support a voting restriction, while a 10.03% stake in March did. What decided the outcome was not which stake was larger. What mattered was whether the entity holding the Young Poong shares was SMC or SMH — and, further, whether that foreign entity was of the same type as, or most closely resembled, a stock corporation under Korea's Commercial Act.
That does not mean a Pty Ltd is always equivalent to a Korean limited liability company and a Public Ltd always equivalent to a Korean stock corporation. Korea also has unlisted stock corporations whose shares are subject to transfer restrictions. Ultimately, legal features such as shareholder liability, share transferability and the composition of corporate organs must be assessed as a whole, based on local law and the company's own articles of incorporation. The two Supreme Court decisions show that what matters is not the mere fact that a foreign entity was involved, but which foreign entity held the shares and in what legal capacity.
Why 1,350 Shares Mattered Just Before the Meeting
Even heading into the March annual meeting, however, the voting restriction was not settled. This time, whether the 10% threshold was exceeded had shifted. When SMH received the 190,226 Young Poong shares from SMC, it held more than 10% of Young Poong. But the picture changed when Young Poong's own annual meeting on March 27 approved a stock dividend, increasing Young Poong's total outstanding shares. SMH was not a shareholder as of Young Poong's record date for the stock dividend and so received no dividend shares. Its share count stayed the same, but as total outstanding shares rose, SMH's stake fell to 9.96% — below the "more than 10%" condition the law requires.
The next day, March 28, at 8:47 a.m., SMH acquired an additional 1,350 Young Poong shares. Its total holding reached 191,576 shares and its stake climbed back to 10.03%. At 10:14 a.m., it notified Young Poong of the acquisition. Korea Zinc's annual meeting opened at 11:32 a.m., and the company barred Young Poong from voting. Resolutions passed that day included an amendment to the articles of incorporation capping the number of directors at 19.
Young Poong argued that the notice left it no time to respond, but the appellate court found that notification roughly one hour and 27 minutes after the acquisition had been given "without delay."
A question arises here. Korea Zinc's record date for the annual meeting had already passed — Dec. 31, 2024. How could the acquisition of 1,350 Young Poong shares nearly three months after that date affect voting rights at Korea Zinc's meeting?
The answer lies in the fact that a meeting's record date and the date of the meeting itself determine different questions. The record date fixes who the shareholders entitled to exercise rights at Korea Zinc's meeting are. Whether Korea Zinc or a qualifying subsidiary holds more than 10% of Young Poong's total outstanding shares, by contrast, is judged as of the actual date of Korea Zinc's meeting. The former concerns identifying the shareholders who may vote; the latter concerns whether grounds for restricting voting rights have arisen with respect to a shareholder so identified.
This reasoning did not appear for the first time in this case. Back in 2009, the Supreme Court held that even if the cross-shareholding requirements were not met on a meeting's record date, voting rights are restricted if those requirements are met on the actual date of the meeting.
Separately, on March 7, Young Poong made an in-kind contribution of the roughly 25% stake in Korea Zinc it had held to YPC, a newly established wholly owned limited liability company. Young Poong argued that because YPC held the shares on the day of the meeting, the cross-shareholding voting restriction did not apply. But on Dec. 31, 2024 — the record date for Korea Zinc's annual meeting — Young Poong had held those shares. The Supreme Court held that even if ownership of the shares was transferred to YPC after the record date, the party entitled to vote at that meeting was Young Poong, the shareholder as of the record date. The voting rights attached to the Korea Zinc shares Young Poong held on the record date therefore remained subject to restriction.
In the end, two separate points in time have to be read separately in this case. The shareholder entitled to vote at Korea Zinc's meeting is determined as of the record date, while whether SMH held more than 10% of Young Poong is determined as of the actual date of the meeting. That is why the additional 1,350-share purchase mattered, and why Young Poong's post-record-date in-kind contribution of the shares to YPC was not by itself enough to escape the voting restriction.
Meeting the cross-shareholding requirements does not, of course, justify every act by management taken to build that structure. In this case too, arguments were raised that the moves amounted to unlawful conduct or an abuse of rights aimed at preserving executives' personal positions, but the Supreme Court upheld the lower court's finding that such claims were difficult to establish on the record submitted in injunction proceedings. The court did not declare that share acquisitions made to defend management control are always legitimate.
Restrictions on voting rights for cross-held shares were originally meant to prevent distortions of corporate control arising from mutual shareholdings. In the Korea Zinc-Young Poong dispute, that provision operated as a tool for defending management control. Yet simply clearing the 10% figure was not enough to strip the other side of its votes. The legal character of the Australian entity holding the Young Poong shares, and the timing of the holding above 10%, determined the voting rights Young Poong could exercise at Korea Zinc's shareholder meeting. What matters in a management control dispute is not only how many shares one holds, but how many votes those shares can actually cast.
