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Seoul High Court stops GM Korea R&D spinoff

Decision came after accusation automaker broke own regulations
Nov 29,2018
The Seoul High Court put a halt to GM Korea’s plan to spinoff its R&D center, claiming the carmaker breached its own articles of association.

GM Korea will appeal.

The court on Wednesday accepted the Korea Development Bank’s (KDB) request for an injunction to suspend the automaker’s decision to establish the GM Technical Center Korea, a separate R&D-dedicated company spun off from GM Korea.

“The spinoff plan requires an extraordinary decision process where more than 85 percent of ordinary shares have to agree with it in order to gain approval,” the court said, pointing out that a decision to create a new company requires a different voting process under GM’s own articles of association.

“But the plan was approved while less than 85 percent of the ordinary shares agreed to it, meaning the carmaker critically infringed with the articles of association.”

Of the 415 million ordinary shares of GM Korea, 344 million, or 82.9 percent, voted in favor of the plan, falling short of the 85 percent needed.

The acceptance of the request is conditional, as the court requires the bank to deposit 1 billion won ($886,760) as insurance in case loss is generated at GM Korea due to the suspension of the R&D spinoff.

The board of GM Korea approved the plan to spin off the R&D center on Oct. 19 despite strong opposition from the labor union and skepticism from KDB, its second-biggest shareholder.

KDB filed for an injunction against the board meeting at the time, but the request was dismissed and the meeting went ahead as planned.

GM Korea claimed the spinoff plan doesn’t directly affect the percentage that each shareholder holds in the company and that it shouldn’t be categorized as an extraordinary decision.

“We are disappointed and respectfully disagree with the high court’s decision on the appeal,” the auto company said in a statement Wednesday.

“We are reviewing all of our appeal options and remain committed to establishing the standalone GM Technical Center Korea to better position our operations for future work.”

The spinoff was scheduled to be carried out on Nov. 30, but will likely be called off until the legal fight is resolved.

The automaker’s labor union has strongly opposed the spinoff plan, which was first announced in July, claiming it would eventually lead to the carmaker’s complete withdrawal from Korea, leaving only a minimum R&D workforce here while laying off more than 3,000 blue collar workers at GM Korea factories.

The union welcomed the court’s decision on Wednesday.

“It is reasonable to not accept GM Korea’s plan of spinning off the R&D center, which was decided at the board meeting when KDB, the automaker’s second-biggest shareholder, was not in attendance,” said Lim Han-taek, who leads GM Korea’s labor union, on Wednesday.

“The latest ruling will ban GM Korea from carrying out the spinoff for at least one to three months from now. We will act together with KDB from now on.”

The union has been staging a hunger strike since Nov. 21.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]