Korea's delisting drive faces court challenge as expulsions nearly double
The Korea Exchange office in Seoul / Yonhap
The government's push to speed up the delisting of troubled companies is running into legal resistance, industry officials said Sunday. The challenges threaten to complicate efforts to improve the quality of the country's stock market after the number of firms removed from the Korea Exchange (KRX) nearly doubled this year.
The Seoul Southern District Court recently granted injunctions sought by KOSPI-listed JooYonTech and Kosdaq-listed KM Pharmaceutical, blocking the KRX from proceeding with their delistings.
"Even taking into account the circumstances cited by the defendant, including the possibility that granting the injunction could delay the capital market reforms currently under way, there is a demonstrated need because delisting could harm the plaintiffs' business operations and even threaten their continued existence," the court said.
The KRX moved forward the implementation of higher market-capitalization thresholds — 30 billion won ($22.28 million) for KOSPI companies and 20 billion won for Kosdaq firms — to July this year, earlier than the initial January 2027 schedule.
The exchange also significantly tightened the requirements for companies to shed an administrative designation, requiring them to remain above the threshold for at least 45 consecutive trading days within a 90-trading-day period, compared with the previous requirement of 10 consecutive days and 30 days in total.
The court said that despite the tougher continued-listing requirements, the rules unduly restricted companies' procedural rights by giving firms that fall below the market-capitalization threshold no opportunity to appeal or present their case.
It also noted that market capitalization can be affected by external factors, including economic shocks and shifts in investment flows, and therefore should not be treated in the same way as bankruptcy or complete capital impairment.
The rulings come as financial authorities step up efforts to improve the quality of the stock market by removing financially troubled companies more quickly.
According to the KRX disclosure system, 36 companies were delisted from the KOSPI and Kosdaq markets in the first nine months of this year for failing to meet continued-listing requirements, up 89.5 percent from the same period a year earlier.
The exchange had even expected tighter market-capitalization requirements introduced in the second half of the year to result in the delisting of around 50 companies from the Kosdaq market alone.
However, the court decisions could encourage more legal challenges from listed companies facing removal on similar grounds, according to industry officials, potentially slowing the exchange's delisting drive.
Utillex, Daejin Advanced Materials, Gold & S, Jeil M&S and Samyung ENC have sought injunctions against their delistings, while Pintel and Medicox filed similar applications on Oct. 1.
"Some companies designated as administrative issues were found to have no capital impairment and relatively sound fundamentals," said Ahn You-mee, a research associate at the Korea Capital Market Institute. "Policymakers may continue assessing how further increases in the thresholds could affect both companies and the broader market."
The KRX plans to closely review the situation and consult with financial authorities before deciding how to respond.