Notice of Temporary Board Meeting of Korea Zinc... MBK "Purpose to Restore Voting Rights of Treasury Shares"

by Park Soyeon

Published 29 Oct.2024 13:21(KST)

Will Respond to MBK and Youngpoong's Request for an Extraordinary General Meeting
Possibility of Disposal of Treasury Shares by Employee Stock Ownership Association Gains Traction
Legal Experts Warn of Breach of Fiduciary Duty if Treasury Shares Are Disposed by Employee Stock Ownership Association
Contrary to the Original Purpose of Treasury Share Acquisition Such as Cancellation

Korea Zinc is reported to have convened a board meeting on the 30th without specifying concrete agenda items to the directors, raising the possibility that treasury shares may not be canceled but instead disposed of to Korea Zinc’s employee stock ownership association (ESOP). The trust period for 289,703 treasury shares (1.4%) held under the treasury stock acquisition trust contract dated May 8 is approaching its expiration on November 8.

An MBK Partners official stated on the 29th, "Although the treasury stock acquisition trust contract specifies the purpose as ‘share cancellation and employee evaluation compensation,’ Chairman Choi Yoon-beom, who is eager to secure even one voting share compared to the major shareholders MBK Partners and Young Poong, is likely not to cancel the treasury shares contrary to the original intent." He added, "As the trust period expiration date approaches, it is interpreted that Chairman Choi’s reason for notifying the board meeting is to revive voting rights by disposing of the treasury shares to Korea Zinc’s ESOP."

Korea Zinc’s 1.4% treasury shares were valued at approximately KRW 370 billion based on the closing price on the 28th. This amount is comparable to Korea Zinc’s total annual labor costs. MBK emphasized, "If resolved at the board meeting, it would mean that just days after burdening the company with about KRW 1.8 trillion through a public tender offer for treasury shares, the company would again transfer treasury shares worth KRW 370 billion to the ESOP, imposing enormous financial burdens and damages on Korea Zinc to protect Chairman Choi Yoon-beom."

MBK added, "Legal circles are voicing concerns that disposing treasury shares to the ESOP in this manner could constitute breach of trust. Support for the ESOP aimed at securing stable shareholders to preserve the current management’s position amid a management rights dispute is an illegal act. According to Supreme Court precedents, using employee stock ownership to maintain the management rights of certain executives in a shareholder competition situation constitutes breach of trust in the course of business, and this has already been firmly established as legal doctrine."

Furthermore, "Disposing treasury shares to the ESOP would violate the board’s resolution purpose of ‘share cancellation and employee evaluation compensation’ made when acquiring the treasury shares, and strong protests from shareholders are expected. Korea Zinc announced on May 3 that out of KRW 150 billion worth of treasury shares planned for acquisition, KRW 100 billion would be canceled and the remaining KRW 50 billion would be used for employee compensation programs. Disposing treasury shares to the ESOP reverses the original acquisition purpose, causes losses to general investors who trusted the cancellation plan and purchased Korea Zinc shares, and contradicts shareholder return policies," they said.

MBK stated, "In a situation where an extraordinary general meeting has been requested to appoint new directors and fully introduce an executive officer system at Korea Zinc’s board, if the board disposes treasury shares to the ESOP, directors who approve this will bear criminal liability for breach of trust in the course of business and substantial civil damages."