A court has blocked a Korea Exchange rule that allows listed companies to be removed from the market solely because their market value fell below a set threshold. Deciding on a delisting based on a single indicator, without giving companies a chance to object or present their case, excessively restricts their procedural rights, the court said. The ruling is still at the injunction stage, but depending on the outcome of the main case, it could affect the policy of swiftly removing troubled companies that the government and the exchange have been pursuing.
The Seoul Southern District Court's 51st civil division, presided over by Judge Kwon Sung-soo, on the 2nd granted an injunction filed by Kmpharmaceutical against the Korea Exchange to suspend the effect of a delisting decision. As a result, the delisting decision issued by the exchange on Sept. 14 is suspended until the main judgment becomes final, and liquidation trading will not take place.
The court took issue with the rule allowing delisting for failing to meet the market capitalization threshold without any opportunity to object or present a case, as well as with a transitional provision that moved up the application of the 30 billion won market cap standard from January 2027 to July this year.
"Both the provision setting delisting requirements for falling short of market capitalization and the supplementary provision moving up the application of the threshold amount are markedly contrary to the principle of proportionality and run counter to notions of justice, and are therefore unlawful and void," the court said. Noting in particular that a market cap shortfall is a formal ground for delisting against which no objection can be filed, the court said, "By sharply raising the standard without providing an opportunity to state an opinion or file an objection, the exchange excessively infringes on listed companies' right to participate in the procedure."
On applying the tightened standard six months earlier than originally planned, the court said the exchange "failed to present any concrete necessity beyond an abstract explanation that it was done in pursuit of the public interest in the timely removal of troubled companies." The point is that even if the policy goal of removing companies from the market is legitimate, a delisting cannot be moved up without a sufficient grace period and procedures for presenting a case.
Kmpharmaceutical was designated as an issue under administrative watch in July after its market value fell short of the threshold for 30 consecutive trading days, and it was designated for delisting on Sept. 14 after failing to meet the requirements for recovery.
The court on the same day also granted an injunction filed by KOSDAQ-listed Jooyontech against the exchange, halting its delisting decision and liquidation trading. With injunctions granted to multiple listed companies on the same day, controversy over the delisting system built around market capitalization standards is expected to grow.
A lawyer who represented the companies in the litigation said, "Excluding a normally functioning company from listing eligibility based on a single market capitalization indicator calls for caution, also for the sake of the healthy development of the capital market."
