Kyusung Lee Attorney at Law

On July 10, 2026, the 17th Civil Division of the Seoul Central District Court (Presiding Judge Jang Ji-hye) ordered the individual who chaired Korea Zinc’s January 2025 extraordinary general meeting (EGM) — and who also serves as the company’s CEO — to pay KRW 100 million in damages, plus interest, to Young Poong, Korea Zinc’s largest shareholder (Case No. 2025Gahap9268). It is the first Korean court decision to hold a meeting chair personally liable in tort for unlawfully restricting a shareholder’s voting rights under the cross-shareholding rule of Article 369(3) of the Korean Commercial Act. For any foreign investor, fund, or executive with a stake in a Korean listed company, the case is a useful window into how far Korean courts will go to police shareholder-meeting procedure — and how personal that liability can become.

1. Background: A Cross-Shareholding Structure Built the Night Before

Young Poong, holding roughly 25.42% of Korea Zinc and its largest shareholder, requested an EGM in October 2024 to replace the incumbent management team. The dispute unfolded against the backdrop of a much larger battle: MBK Partners, a Korean private equity firm, had allied with Young Poong’s controlling family in 2023 and launched a tender offer for Korea Zinc shares that eventually pushed the offer price from roughly KRW 660,000 to KRW 830,000 per share, with total capital deployed by both sides reportedly exceeding KRW 7 trillion.

One day before the EGM, on January 22, 2025, Korea Zinc caused Sun Metals Corporation (SMC) — an Australian company wholly owned through its Australian holding subsidiary — to acquire approximately 10.33% of Young Poong’s shares. This created a circular shareholding loop overnight: Korea Zinc → its Australian holding company → SMC → Young Poong → Korea Zinc. At the EGM held the next day, the chairman — Korea Zinc’s own CEO — invoked Article 369(3) of the Commercial Act to strip Young Poong of voting rights on its entire 25.42% stake, citing this newly formed cross-shareholding structure. Young Poong’s proposals were defeated; Korea Zinc’s proposals, including a cap on the number of directors and the election of its own outside director nominees, passed.

What Does Article 369(3) Actually Do? Under Korean law, if a company (together with its parent or subsidiaries) holds more than 10% of another company’s shares, that other company’s reciprocal shareholding in the first company (or its parent) loses its voting rights. The rule exists to prevent companies from manufacturing artificial control through circular ownership rather than genuine capital investment. In this case, Korea Zinc’s management relied on Article 369(3) to disenfranchise its own largest shareholder — which is exactly the scenario the court scrutinized.

2. The Court’s Reasoning: Three Key Findings

1.  An Australian Pty Ltd. is not a “subsidiary” under Korean law. Article 369(3)’s reference to a “subsidiary” presumes a stock corporation (jushik-hoesa); for a foreign entity to qualify, it must be of the same or a closely comparable type. The court found that SMC, structured as an Australian Proprietary Limited company with restrictions on share transfers and a closed ownership structure, more closely resembles a Korean limited liability company (yuhan-hoesa) than a stock corporation. Because SMC did not meet the statutory definition, the voting restriction premised on its status as a “subsidiary” was unlawful from the outset.

2.  The chairman was personally at fault. Because a shareholder’s voting right is a core statutory right that cannot be curtailed absent a clear legal basis, the court held that Article 369(3) must be construed strictly. The chairman — who was personally involved in engineering the cross-shareholding structure and chaired the meeting — relied on a single legal opinion without seriously testing competing interpretations, disclosed the voting restriction only after the meeting had already opened, and rejected Young Poong’s requests to postpone the meeting or allow time for legal review. On these facts, the court found the chairman knew, or should have known, that the restriction would infringe Young Poong’s shareholder rights, and that he breached the duty of fairness owed by a meeting chair.

3.  “Legitimate takeover defense” was not a valid excuse. The chairman argued the voting restriction was a legitimate defensive response to a hostile takeover attempt. The court disagreed, finding that the manner and consequences of the restriction could not reasonably be characterized as a necessary or proportionate defensive measure.

A Note on Damages and Standing In setting the damages award, the court took into account that, had Young Poong’s votes counted normally, the director-cap proposal and the outside director nominations would very likely have failed. Separately, the court dismissed the claim brought by Korea Investment Holdings — the special purpose vehicle MBK Partners formed to pursue the acquisition — finding it had not suffered a directly cognizable legal injury.

3. Practical Takeaways for Foreign Investors and Companies in Korea

•  If you are structuring or evaluating a cross-shareholding arrangement involving an offshore subsidiary, do not assume a wholly owned foreign entity automatically counts as a “subsidiary” for purposes of Article 369(3). Korean courts will look through the corporate label to the entity’s actual characteristics — transferability of interests, openness to outside investors, and similarity to a Korean stock corporation.

•  If you chair, or advise the chair of, a Korean shareholders’ meeting, restricting a shareholder’s vote requires real procedural fairness: multiple independent legal opinions, advance notice, and a genuine opportunity for the affected shareholder to respond. Cutting corners exposes not just the company but the individual chair to personal tort liability.

•  A bill currently pending in the National Assembly would let any shareholder holding 5% or more of voting shares petition a court to appoint an independent meeting chair up to 10 days before a general meeting. Foreign funds engaged in Korean control contests should watch this development closely, as it could become a powerful preemptive tool.

Cross-shareholding voting restrictions are only one of several tactics deployed in Korean control contests, alongside treasury share dispositions, defensive share issuances, and white-knight arrangements. This ruling sends a clear signal: however sophisticated the structure, if it lacks procedural and substantive legitimacy, both the company and the individuals who executed it can be held personally liable. If you are a foreign investor holding a significant stake in a Korean listed company, or a company preparing for a contested general meeting, engaging Korean counsel before the meeting — not after — is the difference between preserving your rights and litigating to recover them.

About the Author

Name	Kyusung Lee, Attorney at Law (Korean Bar Association)
Education	B.A. in Economics, Brown University / J.D., Yonsei University Law School
Experience	Samsung C&T Legal Team (International Contracts) / Equity Research, BofA Merrill Lynch / CAMS Certified
Practice Areas	Cross-border contracts, startup law, foreign investment, corporate law & governance, commercial disputes
Contact	+82-2-6264-7604 / kyusungii@gmail.com

Kyusung Lee, Attorney at Law | Cross-Border Contracts · Corporate Law · Shareholder Activism +82-2-6264-7604   |   kyusungii@gmail.com   |   http://www.kyusunglee.com   |   Naver Blog: blog.naver.com/hotchkiss777

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