JB Financial's 'Voting Rights' Trick

JB Financial Group (hereinafter JB Financial) is facing controversy ahead of its shareholders' meeting after securing a 0.75% friendly stake by cleverly circumventing the cross-shareholding voting rights restriction regulations through the use of funds.

Align Partners Asset Management (hereinafter Align Partners) announced on the 15th that it filed a provisional injunction to prohibit the exercise of voting rights against JB Financial and Finda at the Jeonju District Court on the 7th.

Last year, JB Financial Group, Jeonbuk Bank, and JB Investment invested a total of 44.5 billion KRW in the fintech company Finda, each acquiring a 5% stake, securing a total of 15% ownership in Finda. In return, Finda purchased 0.75% of JB Financial's shares on the open market.

Although justified as a strategic alliance, from a governance perspective, it can be interpreted as securing a friendly stake by providing company funds to another company.

According to a disclosure made on July 26 last year, the subsidiary Jeonbuk Bank announced plans to acquire a 10% stake. However, ultimately, Jeonbuk Bank secured a 5% stake in Finda, and the remaining 5% was acquired through a new technology investment association managed by JB Investment. Investments through new technology investment associations are not subject to cross-shareholding regulations under the Commercial Act.

Article 369, Paragraph 3 of the Commercial Act stipulates voting rights restrictions on shares held by a company, its parent, or subsidiaries in another company when the total shares exceed one-tenth, to prevent distortion of corporate governance caused by capital impairment and voting without investment.

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Applying this to the JB Financial case, JB Financial and the bank each secured 5%, keeping ownership below 10%, while the rest was invested through an association to evade the voting rights restriction regulations.

Regarding this, Align Partners stated, "JB Financial formed cross-shareholding by evading the cross-shareholding regulations under the Commercial Act through illegal means," adding, "Since the shareholding gap among major shareholders is less than 0.6%, allowing Finda to exercise voting rights on its shares could have an irreversible significant impact on the upcoming shareholders' meeting results, prompting us to urgently file the provisional injunction to prevent this."

JB Financial appointed two non-executive directors (Park Jongchun, Jeong Sanghun) to Finda, and according to recent media reports, Finda has announced its intention to exercise voting rights on the 0.75% stake in JB Financial.

In July last year, JB Financial acquired 1,282,560 shares of Finda, representing a 5% stake (acquisition cost approximately 14.8 billion KRW), through a third-party allotment paid-in capital increase. At that time, JB Financial announced through press releases and disclosures that its subsidiary Jeonbuk Bank would also participate in the paid-in capital increase, acquiring a 10% stake in Finda (acquisition cost approximately 29.7 billion KRW).

During this process, JB Financial and Finda agreed to acquire cross-shareholdings. In exchange for a total investment of approximately 44.5 billion KRW from JB Financial and Jeonbuk Bank, Finda agreed to purchase JB Financial shares on the open market equivalent to JB Financial's investment of about 14.8 billion KRW in Finda. As of the end of last year, Finda actually secured 1,475,258 shares of JB Financial, representing a 0.75% stake.

Align Partners inquired with JB Financial about whether the JB Financial shares held by Finda qualify as cross-shareholdings. JB Financial responded that "Jeonbuk Bank directly holds only 5% of Finda's 10% stake, and the remaining 5% is held through a new technology investment association formed by Jeonbuk Bank (limited partner, LP) and JB Investment (general partner, GP). The association is not considered a subsidiary under the Commercial Act." Furthermore, JB Financial explained that "the JB Financial shares held by Finda are not subject to voting rights restrictions as cross-shareholdings under the Commercial Act."

In response, Align Partners stated, "The 5% stake in Finda held by the new technology business investment association is effectively owned by JB Financial's wholly-owned subsidiary Jeonbuk Bank and JB Investment as members of the investment association, meaning JB Financial, Jeonbuk Bank, and JB Investment collectively hold 15% of Finda's shares." They added, "According to the cross-shareholding voting rights restriction regulations under the Commercial Act, the JB Financial shares held by Finda cannot have voting rights recognized."

They further stated, "JB Financial made it appear as if the voting rights restriction regulations on cross-shareholdings do not apply, but Finda used part of the funds invested by the JB Financial Group to purchase JB Financial shares on the open market according to the agreement, and such formation of cross-shareholding distorts JB Financial's voting rights." They emphasized, "It is regrettable that JB Financial's board of directors failed to prevent this illegal transaction structure that worsens corporate governance, highlighting a significant flaw in the board's expertise and independence."

Align Partners emphasized that they will make multifaceted efforts to appoint independent and highly professional outside directors and non-executive directors, including venture investment expert candidate Donghwan Kim, fintech company Crowdy CEO and outside director candidate Kisuk Kim, and corporate governance expert and non-executive director candidate Namwoo Lee, and will continue to take all possible measures as shareholders at the upcoming shareholders' meeting.

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