Hanjin Group claimed that Korea Corporate Governance Improvement (KCGI) is not qualified to exercise its shareholder proposal rights. It noted that the Commercial Act requires a shareholder to own a 0.5 percent or larger take for over six months to exercise shareholder proposal rights, when the company is a listed firm with a capital of 100 billion won (US$89.01 million).
KCGI owns a 10.71 percent stake in Hanjin KAL and an 8.03 percent stake in Hanjin Transportation through Grace Holdings. But Hanjin Group noted that Grace Holdings was set up on Aug. 28, 2018, less than six months from Jan. 31, 2019 when KCGI sent its shareholder proposals.
“KCGI, which is a minority shareholder, is required to satisfy the special provisions of stock ownership for at least six months in order to present shareholder proposals to Hanjin KAL and Hanjin Transportation,” a Hanjin official said in a statement on Feb. 20. This came three weeks after KCGI sent a shareholder proposal.
Article 363 of the Commercial Act says that a shareholder with a 3 percent stake, excluding non-voting shares, has the shareholder proposal rights. In light of this provision, it seems legitimate for KCGI to exercise its shareholder proposal rights. However, Article 542 of the act, which was revised in 2009, says that only shareholders owning a stake in listed firms for more than six months can exercise their shareholder rights.
KCGI had to own a stake in Hanjin KAL and Hanjin Transportation before July 31, 2018, six months from Jan. 31 when it sent its shareholder proposals, in order to exercise its shareholder proposal rights. However, Grace Holdings was established on Aug. 28 last year, according to Hanjin Group.
The court is highly likely to agree with Hanjin Group’s claims in consideration of precedents. Elliott Management filed an injunction request to ban a shareholder general meeting at Samsung C&T, which was convened to approve a merger between the company and Cheil Industries, but the Seoul Central District Court and the Seoul High Court rejected Elliott Management's request in 2015 for its failure to meet the terms of the Commercial Act. However, KCGI claimed that “six months of ownership” is not a requirement. Therefore, a legal battle over the interpretation of the law seems to be inevitable.