The court has put the brakes on GM Korea’s plan to spin off its research and development unit into a separate company, saying there was a serious flaw in the company’s decision-making process.
The Seoul High Court accepted on Nov. 28 the Korea Development Bank’s request for a provisional court injunction to suspend the execution of GM Korea’s spin-off plan, which was approved at a shareholders’ meeting in July.
The Korea Development Bank (KDB) is the second largest shareholder of GM Korea.
The court said it suspended GM Korea’s spin-off plan on the condition that the KDB deposits 1 billion won as collateral for GM Korea or submit a written payment guarantee contract with the amount as insurance. “GM Korea must not implement the spin-off plan,” it said.
GM Korea held a general shareholders' meeting on July 19 amid opposition from the KDB and its labor union and approved a plan to establish GM Technical Center Korea, a new research and development company.
The number of ordinary shares among those in favor of the spin-off plan was 344 million, or 82.9 percent of GM Korea’s 415 million common stocks.
The court said, "The proposed spin-off involves a legal act of establishing a new company and transferring part of the debtor's rights and responsibilities. It is subject to an extraordinary decision, as specified in GM Korea’s articles of association, which requires approval of more than 85% of ordinary shares."
The court added, “Therefore, the decision made at the shareholders’ meeting has grave flaws as it was not approved by more than 353 million shares, accounting for 85 percent of the total number of ordinary shareholders.”
GM Korea argued that the proposed spin-off was an exception to the extraordinary decision clause, saying it was “a merger and other similar act that does not affect the company's actual equity situation.” But the court rejected GM Korea’s argument.
Rather, the court judged that the split should be approved by a super majority of ordinary shares because it constitutes “an activity similar to a merger that causes changes in the real equity situation of GM Korea.”
"Even if the spin-off does not change the shareholding ratio of GM Korea, it should be seen as affecting the substantial distribution of equity if it causes changes in the size of the equity owned by the KDB, because it means the economic value of the shares that shareholders own in GM Korea would change,” the court said.
On the other hand, GM Korea said it disagrees with the court ruling and will lodge an appeal.
"We believe that establishment of GM Technical Center Korea will contribute to management normalization and be the best for all stakeholders including the labor union, shareholders and business partners," the company said. “We will continue our efforts to solidify the company’s presence in the market through the launch of the new R&D company.”
The KDB first filed for an injunction to ban the shareholders' meeting, but its request was not accepted.
The general meeting of shareholders was held as scheduled, and the KDB filed a request for an injunction to suspend the implementation of the spin-off plan approved at the meeting.