Government’s push for 'rapid and stringent' delisting faces judicial scrutiny over failure to guarantee procedural rights.
Wonpung Mulsan and Suseong Toon have already been delisted; no mechanism exists to compensate investors who offloaded shares during liquidation trading.
“To leap forward into a market trusted by investors, we need faster and more stringent delisting of insolvent companies.”
This was the rallying cry of Kwon Dae-young, Vice Chairman of the Financial Services Commission (FSC), when he unveiled the market’s delisting reform plan last February. As the government accelerated the removal of "zombie" firms, several companies vanished from the exchange—only for the courts to later slam the brakes on the application process for these tightened regulations. While the Korea Exchange (KRX) has halted subsequent delisting procedures, it has offered no relief to investors who already liquidated their holdings at a loss.
Delisting processes can be paused, but completed stock transactions cannot be undone. The disparate outcomes between companies like Wonpung Mulsan and Suseong Toon, which were already ejected, and firms whose processes were frozen mid-stream, have exposed significant gaps in investor protection.
Court Intervention Stalls Delisting; Earlier Exits Left Behind
On the 7th, the Korea Exchange announced it would suspend further delisting procedures triggered by failure to meet market capitalization requirements. This move follows a ruling by the Seoul Southern District Court on the 2nd, which granted an injunction against the delisting of Juyuntech and KM Pharmaceutical.
The court did not necessarily take issue with the tightened market cap standards themselves, but rather with the procedures for their application. The court found that the KRX failed to sufficiently guarantee the companies’ rights to state their positions or file for formal objections, and failed to provide adequate justification for why the recovery requirements were tightened or the enforcement timeline accelerated.
While the KRX maintains it will challenge the court’s decision, it explained that it halted subsequent procedures starting on the 2nd to prevent market uncertainty for companies and investors amid the spread of similar legal disputes. As of the 7th, 59 companies were under management for failing to meet market cap requirements, and the trading suspensions for eight firms already slated for delisting remained in effect.
The situation is starkly different for Wonpung Mulsan and Suseong Toon, both of which have already been removed from the KOSDAQ market—Wonpung on September 21 and Suseong Toon on the 1st of this month. Both failed to meet the strengthened market cap recovery criteria.
According to semi-annual reports, Wonpung Mulsan had 5,687 retail shareholders as of May, collectively holding 59.23% of total issued shares. Despite the thousands of shareholders affected by the delisting, the court’s intervention came only after the liquidation trading period had already concluded.
Conversely, trading in SHD, Sejin TS, and AFW was suspended while their liquidation trading was still underway. Because the KRX halted the process without requiring a separate injunction, these firms avoided final delisting. Though subject to the same regulations, the fate of these companies—and their investors—diverged based entirely on the timing of their liquidation trades.
No Recourse for Losses Incurred During Liquidation Trading
So, what becomes of investors who have already offloaded their shares during the liquidation phase?
Liquidation trading is intended to provide investors with a final opportunity to exit before a stock is removed from the exchange. However, since there are no price fluctuation limits, share prices can plummet, often forcing investors to sell at rock-bottom prices to avoid further losses.
The suspension of the delisting process only freezes future proceedings; it does not cancel past trades or provide compensation for losses. As Wonpung Mulsan and Suseong Toon have already completed the delisting process, investors who sold during liquidation trading have no mechanism to reclaim their shares or recover their losses.
Filing separate claims for damages is equally daunting. Whether the delisting decision was unlawful and whether there is liability for investor losses are separate legal questions. Even if a court finds the KRX’s actions unlawful, investors would still face the difficult burden of proving causation and actual damages.
The KRX’s announcement regarding the stay of proceedings contained no provisions for restoring the listing status of already-delisted companies or providing relief to those who liquidated their holdings. While the move bought time for companies currently in the pipeline, it offered no clear path for investors who were pushed out by the earlier, faster pace of the regulator.
When the FSC announced its reform plan, it declared: “We will build an attractive exchange where investors can invest with confidence and good companies aspire to be listed.” The intent was to achieve both the rapid exit of insolvent firms and the restoration of investor trust.
However, now that the court has halted the process, the government’s promise of investor protection faces a significant test. Authorities that pushed for accelerated delisting must now answer for the fallout. While the speed of exits was increased, the safety net for investors caught in the crossfire remains nowhere to be found.
