Korea Zinc (010130) won the first-round ruling in a derivative lawsuit seeking some 837 billion won brought by Young Poong (000670) and MBK Partners, easing part of the burden from a management control dispute that has dragged on for more than two years. Chairman Choi Yoon-birm has shed a major contingent liability risk and gained momentum to defend his control of the company and push ahead with new growth businesses, analysts said.
The 30th Civil Division of the Seoul Central District Court, presided over by Judge Kim Seok-beom, ruled against the plaintiffs on the 22nd in a derivative suit seeking about 837 billion won in damages from Chairman Choi and nine other Korea Zinc directors, according to legal and business sources on the 23rd. "The directors reviewed legal advice and injunction filings and made their judgment on the premise of a funding plan involving a certain premium rate," the court said. "If that judgment was not markedly unreasonable, it cannot be assessed as a breach of the duty of care or the duty of loyalty."
A derivative suit is an action filed by shareholders on behalf of a company to hold directors liable and recover damages when the company itself declines to pursue them.
The dispute began in September 2024, when Young Poong joined with private equity firm MBK Partners to launch a tender offer for Korea Zinc shares. Korea Zinc was co-founded by the late Chang Byung-hee and Choi Ki-ho, and the Choi and Chang families ran the business together for decades. Tensions between the two sides deepened under Chairman Choi, and Young Poong teamed up with MBK Partners to build its stake. The control fight escalated into a full-blown battle for shares when Young Poong and MBK opened their tender offer on Sept. 13, 2024.
Young Poong and MBK initially offered 660,000 won per share, then raised the price to 750,000 won and 830,000 won. Korea Zinc countered with a tender offer for its own shares. After a court in October 2024 rejected Young Poong's request for an injunction barring the share buyback, Korea Zinc proceeded with a tender offer at 890,000 won per share and ultimately acquired 2,040,030 treasury shares.
The fight expanded beyond the legality of the tender offer to questions of corporate damage and director liability. Young Poong and MBK argued that buying shares at 890,000 won when Korea Zinc stock was trading at around 560,000 won amounted to paying an excessive price and inflicted huge losses on the company. Korea Zinc countered that damage cannot be determined from the tender offer price alone. Because share prices can shift with tender offer terms and competition for stakes during a control contest, the company argued, the question is whether the board acted reasonably with the company's long-term interests in mind.
The court declined to accept Young Poong's arguments in this first ruling, finding it difficult to conclude that the board's business judgment was markedly unreasonable. The legality of the funding source for the share buyback was also a central issue. Young Poong argued that using a discretionary reserve set aside for a specific purpose by shareholder resolution to buy back shares on a board resolution alone violated the Commercial Act and the company's articles of incorporation. The court held that Commercial Act provisions on treasury share acquisition limits cannot be read as restricting the individual source of the funds used. Korea Zinc's arguments were accepted both on the purpose of defending control and on how the funds were used.
Business circles see the ruling as giving Chairman Choi the upper hand in the offensive mounted by the Young Poong-MBK alliance since the fall of 2024. Freed from damages exposure running into the hundreds of billions of won, Chairman Choi can accelerate core new growth projects, including construction of an integrated smelter in Tennessee, and consolidate his leadership.
The two sides responded in sharply different terms. Korea Zinc said that "when a party attacking management control has vast financial resources, the mere repetition of large-scale litigation imposes significant economic and psychological burdens on individual directors and executives and can damage a company's normal decision-making." It added that "Young Poong and MBK should now stop their indiscriminate filing of lawsuits, which obstructs normal business activity and erodes corporate value in the pursuit of a hostile merger and acquisition."
Young Poong said the ruling "placed too much weight on directors' broad business discretion and their formal completion of procedures, while overlooking the substantive impact the treasury share tender offer had on the company's financial soundness and shareholder value," and said it would appeal immediately.