Supreme Court: proxy delegation alone does not make shareholders co-holders
In short
South Korea's Supreme Court confirmed lower court rulings rejecting a suit by minority shareholders of KOSDAQ-listed Melpas who sought to nullify a November 2022 extraordinary shareholders' meeting. The court held that delegating proxy voting for a specific meeting does not by itself make the delegating shareholders and the proxy holder “co-holders” under the Capital Markets Act, so no 5% stake-reporting duty arose. Claims that some proxy forms were rewritten with altered votes also failed, because the courts found the director-appointment agenda met its quorum even without those votes.
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The Supreme Court's 2nd Division, with Justice Oh Kyung-mi presiding, confirmed lower court decisions dismissing and rejecting claims brought by minority shareholders of Melpas, a KOSDAQ-listed company, according to Yonhap, Seoul Economic Daily, Asia Economy and Hankook Ilbo. The court held that delegating a proxy to vote at a specific shareholders' meeting does not by itself make the delegating shareholders and the proxy holder “co-holders” under the Capital Markets Act. [ 1 , 2 , 3 , 4 ]
The dispute dates to an extraordinary shareholders' meeting held on Nov. 11, 2022, Seoul Economic Daily reported. Yonhap, Asia Economy and Hankook Ilbo said third parties including Cheongun Partners, who were seeking control of Melpas, led the convening of the meeting. Their own stake was below 5%, but they collected proxy delegations from other shareholders and exercised voting rights at the meeting. Yonhap and Asia Economy reported that the delegated agent and third parties used shareholders' seals to write new proxy forms that changed the yes-or-no positions on some agenda items. The meeting resolved the appointment of an interim chair, charter amendments and the dismissal and appointment of directors and auditors, and the results were disclosed, according to those reports. [ 1 , 2 , 3 ]
The minority shareholders argued that the delegating shareholders and the third parties should be treated as co-holders, pushing their combined holdings above 5% and triggering the reporting duty under the Capital Markets Act's 5% rule, and that some proxies had been forged, tainting the exercise of voting rights. They sought confirmation that the resolution was null, void or, in the alternative, cancelled, according to Seoul Economic Daily and Hankook Ilbo. [ 2 , 4 ]
The first and second instance courts found no evidence that the delegating shareholders had agreed with the third parties to jointly exercise voting rights. Yonhap, Asia Economy and Hankook Ilbo said they relied on the facts that the delegation covered only that particular extraordinary meeting and could be freely withdrawn, and noted that the Financial Supervisory Service had advised that proxy delegation alone does not create a 5% reporting duty. The courts also held that even excluding the votes exercised under the disputed proxies, the director-appointment agenda met its quorum, so the resolution was not defective. [ 1 , 3 , 4 ]
The Supreme Court agreed, saying that co-holder status requires not merely voting in the same direction but a meeting of minds to jointly exercise voting rights or the right to direct how they are exercised, and that a temporary, revocable delegation does not establish such an agreement. It upheld the lower court's finding on the forgery claim and dismissed the appeal. [ 1 , 2 , 3 , 4 ]
Why it matters
The ruling sets the top court's reading of when proxy solicitation turns separate shareholders into a single reporting bloc under the Capital Markets Act's 5% rule, a question that arises in management-control fights at listed companies. Because the decision rests partly on Financial Supervisory Service guidance that proxy delegation alone creates no reporting duty, it lowers the compliance risk for parties that gather revocable, meeting-specific proxies. The documents do not indicate any wider regulatory or legislative follow-up.
Key facts
- The Supreme Court's 2nd Division, with Justice Oh Kyung-mi presiding, confirmed the lower court decision dismissing and rejecting the minority shareholders' claims against Melpas. [ 1 , 2 , 3 , 4 ]
- The court held that delegating proxy voting for a specific shareholders' meeting does not by itself make the delegating shareholders and the proxy holder co-holders under the Capital Markets Act. [ 1 , 2 , 3 , 4 ]
- The dispute arose from an extraordinary shareholders' meeting held in November 2022 that third parties seeking control of Melpas convened after collecting proxy delegations from other shareholders, although their own stake was below 5%. [ 1 , 2 , 3 , 4 ]
- The meeting resolved the appointment of an interim chair, charter amendments, and the dismissal and appointment of directors and auditors, and the results were disclosed. [ 1 , 3 ]
- Courts found no evidence that the delegating shareholders had agreed to jointly exercise voting rights, citing that the delegation was limited to that meeting and could be freely revoked. [ 1 , 2 , 3 , 4 ]
- The Financial Supervisory Service had advised that proxy delegation alone does not create a 5% reporting duty, a point the courts considered. [ 1 , 3 , 4 ]
- The courts held that even excluding the voting rights exercised under the allegedly forged proxies, the director-appointment agenda met its quorum, so the resolution was not defective. [ 1 , 2 , 3 , 4 ]
Confirmed by several sources
- The Supreme Court confirmed the lower courts' dismissal of the minority shareholders' claims against Melpas. [ 1 , 2 , 3 , 4 ]
- The Supreme Court ruled that a temporary, revocable delegation of proxy voting for a specific shareholders' meeting is not, by itself, an agreement to jointly exercise voting rights. [ 1 , 2 , 3 , 4 ]
- Melpas is a KOSDAQ-listed company. [ 1 , 3 ]
- Some proxy forms were rewritten using shareholders' seals so that the yes-or-no positions on some agenda items differed from what shareholders had indicated. [ 1 , 2 , 3 , 4 ]
- The Financial Supervisory Service advised that proxy delegation alone does not trigger the 5% reporting obligation. [ 1 , 3 , 4 ]
- The courts found that even setting aside the voting rights exercised under the disputed proxies, the director-appointment agenda satisfied its quorum. [ 1 , 2 , 3 , 4 ]
Still unclear
- The exact number of shares involved in the disputed proxy votes Only one report gives a figure, stating that 3,239,602 shares among those voted by one shareholder side had been delegated by intervening shareholders; the other reports give no number.
- The identity of the parties Yonhap, Asia Economy and Hankook Ilbo name Cheongun Partners among the third parties who sought control of Melpas, while Seoul Economic Daily describes them anonymously as company A and shareholders B and C, and does not name Cheongun Partners.
- How Melpas is described Yonhap and Asia Economy call it a KOSDAQ-listed semiconductor company, while Seoul Economic Daily calls it an electronic components manufacturer.
- Whether the rewriting of proxy forms led to any separate investigation or legal action The documents describe the alteration of proxy forms only as an argument in this civil suit and do not say whether any other proceedings followed.
What local media are saying
Timeline, local time
- An extraordinary shareholders' meeting of Melpas is held after third parties seeking control collect proxy delegations; it resolves the appointment of an interim chair, charter amendments and the dismissal and appointment of directors and auditors. [ 1 , 2 , 3 ]
- Yonhap and Seoul Economic Daily publish reports on the Supreme Court's confirmation of the lower court ruling. [ 1 , 2 ]
- Asia Economy publishes its report on the ruling. [ 3 ]
- Hankook Ilbo publishes its report on the ruling. [ 4 ]