Seoul High Court backs Hanjin Group

The Seoul High Court ruled Thursday that activist fund Korea Corporate Governance Improvement (KCGI) cannot make shareholder proposals to Hanjin Kal, the holding unit of Hanjin Group.

As a result, recent demands by the fund including selling off unprofitable property and appointing its recommended candidates as outside directors will not be discussed at an upcoming annual general meeting on March 29.

The fund is currently the second-largest shareholder of Hanjin Kal with a 12.8 percent stake. Until last month, its stake was 10.71 percent but it kept purchasing shares this month to increase its presence.

The problem is that it has only been a large shareholder of the holding company for a short amount of time.

Citing Article 542 of the Commercial Act, Hanjin argued that KCGI does not have the right to make proposals because minority shareholders need to hold at least a 0.5 percent stake in a listed company for six months in order to exercise their rights. Hanjin took the issue to court on March 5, arguing that owning the second-largest stake still makes you a minority shareholder.

KCGI first acquired Hanjin Kal shares in November and made its first shareholder proposal in January. The fund should have had the stake six months before making the proposal.

This might have given Hanjin a win over KCGI, but concerns remain for Hanjin Group’s owner family including Chairman Cho Yang-ho.

A major issue to be voted on at the shareholders’ meeting for Korean Air, the biggest affiliate of Hanjin Group, is whether to re-elect Cho as chairman of the airline. Cho’s term on the board of directors at the country’s largest airline ends this year and shareholders will vote on his re-election at the meeting that falls on Wednesday.

Major proxy advisers, including local firm Sustinvest - and reportedly Institutional Shareholder Services - have shown concerns over taking Cho as he has been indicted for embezzlement and breach of trust.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]