Legal battle intensifies ahead of Sept. 9 extraordinary shareholder meeting

Defamation, business obstruction charges to be filed with Seoul police

Company rebuffs claims on treasury share disposal, accounting follow-up

Both sides compete for votes on audit committee appointment

An aerial view of Korea Zinc's Onsan smelter [Korea Zinc]
An aerial view of Korea Zinc's Onsan smelter [Korea Zinc]

Korea Zinc said it plans to file a criminal complaint against associates of Youngpoong and MBK Partners ahead of an extraordinary general meeting of shareholders scheduled for Sept. 9, accusing them of distributing materials containing false information about treasury share disposals, accounting practices and the resignation of independent directors. The move signals a fresh legal escalation in the ongoing management control dispute as the two sides head toward a shareholder vote.

Korea Zinc said Tuesday it intends to file the complaint with the Seoul Metropolitan Police Agency against individuals from Youngpoong and Korea Corporate Investment Holdings who were involved in drafting, posting or distributing the explanatory materials for the extraordinary general meeting. Korea Corporate Investment Holdings is the SPC that MBK established to conduct its tender offer for Korea Zinc.

The charges Korea Zinc plans to pursue include defamation under the Act on Promotion of Information and Communications Network Utilization and Information Protection, defamation through publication, and obstruction of business.

At issue is a document titled "Korea Zinc 2026 Extraordinary General Meeting — Recommendation of Director Candidates Representing All Shareholders," which Youngpoong and MBK published on their campaign website and other channels last month. Korea Zinc said the document contains inaccurate descriptions of the company's management activities, follow-up measures after accounting sanctions, the background to the extraordinary meeting, and the circumstances surrounding the independent directors' resignations.

One of the central disputes concerns Korea Zinc's disposal of treasury shares and issuance of new shares. Youngpoong and MBK have argued that Korea Zinc allocated shares equivalent to 15.5 percent of its total issued shares to friendly parties and that a significant number of the related transactions have become subject to legal proceedings.

Korea Zinc rebuffed that characterization, saying the transactions were management decisions made in pursuit of strategic partnerships and new business initiatives. It added that courts have recognized the business necessity of the new share issuance and that only one case involving those transactions remains in legal proceedings, currently at the appeals stage.

Korea Zinc also drew a line against claims that the company had taken no meaningful follow-up action after its accounting standard violations. The company said it had strengthened internal controls related to investment asset impairment, established new procedures to prevent omissions in related-party disclosures, and reported the improvements to its audit committee.

The two sides also differ on the goodwill impairment at Igneo Holdings, a US electronic-waste recycling company. Youngpoong and MBK have suggested that the delayed recognition of the impairment reflected an intent to conceal losses, while Korea Zinc said the financial regulator determined the accounting error was the result of negligence, not deliberate misconduct.

The circumstances surrounding the resignation of four independent directors in May have also become a point of contention. Youngpoong and MBK have argued that the directors resigned en masse at the direction of Chairman Choi Yun-beom ahead of a final court ruling on voting right restrictions.

Korea Zinc said that when the directors resigned in May, neither the timing nor the outcome of the relevant court decision had been determined, and that the Supreme Court's ruling did not come until Aug. 28. The company also said each director resigned for personal reasons unrelated to Choi's wishes.

On the background to the extraordinary meeting itself, Korea Zinc said the gathering was called to secure at least two separately elected audit committee members in compliance with the revised Commercial Act. The company said it was forced to hold a separate extraordinary meeting after a related amendment to its articles of incorporation failed to pass at the regular general meeting in March.

Korea Zinc said the materials in question were used not only on the campaign website but also in proxy solicitations and investor relations presentations targeting institutional investors, damaging the company's reputation, creditworthiness and shareholder meeting operations. The company said it is also considering additional legal action against any further dissemination of similar content through media or other channels.

"If information that differs from objective facts about the company and its management is circulated ahead of a general meeting, the environment necessary for shareholders to make rational judgments and exercise their voting rights fairly could be undermined," a Korea Zinc official said. "This matter goes beyond the bounds of simple opinion — it distorts specific facts to damage the reputation and credibility of the company and its management, and constitutes a serious act of interference with normal shareholder communications."

The dispute between the two sides is intensifying as the extraordinary meeting approaches. The Supreme Court recently upheld a lower court ruling in an injunction case concerning Youngpoong's voting rights at last year's January extraordinary general meeting, finding that Korea Zinc's Australian affiliate SMC is difficult to classify as a "subsidiary" under the Commercial Act. Both sides have offered competing interpretations of the significance of that decision.

The Sept. 9 extraordinary meeting is set to elect four independent directors and one independent director who will also serve as an audit committee member. On the audit committee candidate, seven of eight major proxy advisory firms — including ISS and Glass Lewis — have recommended voting in favor of Baek In-gyu, the candidate nominated by the Korea Zinc board, while the Korea Institute of Corporate Governance and Sustainability has endorsed Park Yu-kyung, the candidate backed by Youngpoong and MBK.


kwater@heraldcorp.com