The government pushed for ‘quick and strict expulsion’, but the court pointed out that procedural rights were not guaranteed.
Wonpoong Trading and Suseong Webtoon have already been expelled… Relief for investors in liquidation transactions is still a gap
“In order to make a great leap forward into a market trusted by investors, we need to eliminate insolvent companies faster and more strictly.”
This is what Kwon Dae-young, Vice Chairman of the Financial Services Commission, emphasized when announcing the delisting reform plan in February. While the government accelerated the elimination of insolvent companies, some companies disappeared from the stock market, and the court subsequently put the brakes on the process of applying the strengthened delisting regulations. Although KRX stopped the subsequent delisting process, it was unable to reverse the losses of investors who had already disposed of their stocks through liquidation sales.
Although the delisting process can be stopped, stock transactions that have already been concluded cannot be reversed. Gaps in investor protection were also revealed as mixed results emerged between Wonpoong Trading and Suseong Webtoon, which were expelled first, and companies whose procedures were halted during the liquidation sale.
Bankruptcy proceedings halted due to court action... Excluding the two companies that have already been expelled
On the 7th, KRX announced that it would postpone the subsequent delisting process due to insufficient market capitalization. This is a measure taken after the Seoul Southern District Court on the 2nd accepted the application for a temporary injunction to suspend the delisting decision of Juyeon Tech and KM Pharmaceutical.
The court raised issues with the application process rather than the strengthening of the Market Capitalization standards themselves. It was determined that the exchange did not provide sufficient opportunities for companies subject to delisting to express opinions or file objections, and did not provide sufficient grounds for strengthening recovery requirements or advancing the implementation period.
The exchange stated that it would appeal the court decision, but that it had suspended follow-up procedures from the 2nd in consideration of the uncertainty for companies and investors due to the spread of similar disputes. At the time of the announcement on the 7th, there were 59 companies under market capitalization management, and the trading suspension of 8 companies that were suspended after the decision to delist was maintained.
The situation is different for Wonpoong Trading and Suseong Webtoon, which have already been delisted. Wonpoong Trading was expelled from the KOSDAQ market on September 21st, and Suseong Webtoon was expelled from the KOSDAQ market on the 1st of this month. Since both companies failed to meet the strengthened market capitalization recovery requirements, delisting was decided.
As of last May, according to the semi-annual report, Wonpoong C&T's minority shareholders were 5,687, holding 59.23% of the total issued shares. Although the delisting decision involved thousands of shareholders, the court's decision came only after the liquidation sale had already been completed.
On the other hand, trading in SHD, Sejin TS, and APF W was halted while the liquidation sale was in progress. A situation in which delisting was completed as the exchange stopped follow-up procedures was avoided without a separate application for injunction. Although the same regulations were applied, the results varied depending on when the liquidation sale was completed.
If you sold stocks in a liquidation sale... No loss relief plan
So what happens to investors who have already sold their stocks in a liquidation sale?
Clearance sale is a procedure that provides investors with the last trading opportunity before delisting. However, because there is no price limit, stock prices can plummet, and investors sometimes sell stocks even at low prices to avoid additional losses.
Postponing the delisting process is only a measure to stop future proceedings, and is not a decision to cancel already concluded transactions or compensate for losses. The delisting of Wonpoong Trading and Suseong Webtoon has been completed, and investors who sold stocks in the liquidation sale will not be able to get their stocks back or compensate for their losses through this measure.
It is not easy to file a separate claim for damages. The illegality of the delisting decision and responsibility for compensation for investor losses must be determined separately. Even if the exchange's actions are deemed illegal, investors may have to prove actual damages and causality.
The moratorium announced by the exchange did not specify restoration of the listed status of companies that had already been expelled or separate relief measures for investors in liquidation transactions. Although time has been bought for companies in the process of delisting, no clear rescue route has been provided for investors in companies that were delisted first.
When announcing the delisting reform plan, the Financial Services Commission said, “We will create an attractive exchange where investors can trust and invest and where good companies want to be listed.” The intention was to promote the prompt exit of insolvent companies and restore investor confidence.
However, now that the exit process has been halted by the court, the investor protection that the government emphasized has been put to another test. The authorities, who hastened the delisting, must now answer what that decision will do for investors who have already sold off their stocks. Although the speed of exits has increased, there is no relief package in sight for investors who have been pushed out by the speed.
