Tuesday, October 15, 2019
Court Sides with Hanjin KAL over KCGI’s Shareholder Proposals
Activist Fund Suffers a Setback
Court Sides with Hanjin KAL over KCGI’s Shareholder Proposals
  • By Michael Herh
  • March 22, 2019, 10:24
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The Seoul High Court sided with Hanjin Group in its proxy battke with Korea Corporate Governance Improvement (KCGI). 

Just a week before the regular general meeting on March 29, Hanjin Group won an important victory in a confrontation with home-grown activist private equity fund Korea Corporate Governance Improvement (KCGI). The court accepted the claims of Hanjin KAL, the holding company of South Korea's largest flag carrier, that KCGI is not qualified to exercise its shareholder proposal rights.

The Seoul High Court accepted an appeal lodged by the holding company against KCGI, according to Hanjin Group on March 21. The court ruled that Hajin KAL’s appeal is valid. Previously, Hanjin KAL claimed that KCGI is not qualified to exercise its shareholder proposal rights because the local activist fund, which is the second largest shareholder, has owned a 12.80 percent stake in Hanjin KAL for a shorter period of time than required. Grace Holdings, a paper company which actually hold’s KCGI’s stake in Hanjin KAL, was set up on Aug. 28, 2018, less than six months from Jan. 31, 2019 when KCGI sent its shareholder proposals. The Commercial Act requires a shareholder to own a 0.5 percent or larger stake for over six months to exercise shareholder proposal rights, when the company is a listed firm with a capital of at least 100 billion won (US$89.01 million).

In response, KCGI said it is legitimate to exercise its shareholder proposal rights as it has met the requirements set out in Article 363 of the Commercial Act. The article says a shareholder with more than a 3 percent stake, excluding non-voting shares, can exercise the shareholder proposal rights until six weeks before a regular general meeting. In particular, KCGI noted the precedent in 2004. At that time, the Supreme Court ruled that it is possible to exercise the right of the minority shareholders when they satisfy the requirements of the general provision of the Commercial Act, even when they do not meet the six-month ownership requirement. However, this is now a whole new ball game as the Seoul High Court accepted Hanjin KAL’s claims in the second trial contrary to the Seoul Central District Court which ruled in favor of KCGI on Feb. 28.


KCGI made seven shareholder proposals, such as the right to select two outside directors to sit on the board and one auditor, approval of 3 billion won (US$2.66 million) of the maximum salary limit of board members and approval of the maximum salary limit of auditor, last month. However, these proposals will be excluded at the shareholders meeting with the latest ruling.

Instead, the proposals whether to reappoint Suk Tae-soo, who is known as one of the closes associates of chairman Cho Yang-ho, and strengthen the qualification of board members will be included at the meeting.

The Institutional Shareholder Services (ISS), the world’s largest proxy advisory firm, also agreed with Hanjin KAL on March 18. However, even the ISS, which objected all of the KCGI’s proposals, opposed to the reappointment of Suk. It said, “He failed tofulfillobligations of due diligence with good faith as an executive director at the time of accusations against Cho. The item for strengthening the qualifications of board members proposed by the National Pension Service says a member of board of directors is excluded and considered vacancy when he or she is sentenced to more than imprisonment for malpractice and embezzlement related to a company or its subsidiaries. All eyes are on whether the item will pass at the shareholder meeting as Cho, who is indicted on these charges, can be affected by the trial results.