Law Firm ○○, Counsel for the defendant-appellant

[Defendant-Appellee]

Law Firm (Limited) ○○○○

[Defendant-Appellee] Defendant 1 and 3 others

Attorney Kim○-○, Kim○-○, and Sung-○, Counsel for the defendant-appellant

2. The applicant's request is dismissed;

3. The total cost of the lawsuit shall be borne by the applicant;

Respondent: as set forth in the Disposition.

According to the records and the results of the examination of this case, the following facts may be substantiated:

A. Applicant 1) is a corporation established on June 10, 1997 and engaged in a business such as manufacturing and selling new and renewable energy equipment, such as building public assistance systems and solar energy, manufacturing and selling nanotechnology, heat, and manufacturing and selling fluid machinery, and is a corporation listed on the KOSDAQ market.

2) The respondent is a corporation that performs the business of opening and operating the securities market.

B. On March 22, 2018, the Respondent’s notice of the grounds for delisting and the period of improvement under the Act on External Audit of Stock Companies (hereinafter “Act on External Audit”) expressed the Bad Accounting Corporation (hereinafter “the auditor of this case”), an applicant’s external auditor under the Act on External Audit of Stock Companies (hereinafter “Act on External Audit”), “the audit opinion of the applicant’s refusal of opinion” for the separate business year of 2017 and consolidated financial statements on the following grounds.

(1) It is found that there has not been an internal control, such as omission of accounting, with respect to a part of the internal control in connection with the financing transaction. We could not obtain sufficient and adequate evidence related to the possibility and circumstances of the existence of non-performing liabilities due to such internal control deficiencies. (2) We did not obtain sufficient and adequate evidence for the existence and integrity of claims, debts, and completeness through the procedures for inquiry of claims and debts, etc., and we did not obtain adequate and adequate audit evidence for the validity and integrity of transactions and appraisal of assets with a specially related party, with respect to the financing transaction and purchase and sale of tangible assets. In addition, we did not obtain satisfactory results even through alternative procedures.As a result of the above matters, we could not determine whether the grounds for rejection have been necessary for the securities sales and other bonds, subsidiary investment, financial statements related to tangible assets, the comprehensive income statement related to the tangible assets, and the opinion of the Respondent that the reasons for rejection have occurred under Article 318(1)38(2) of the Listing Regulations.

3) The applicant filed an objection against the notification with the respondent on April 2, 2018, and the applicant held a KOSDAQ Enterprise Review Committee on April 23, 2018 and granted the period of improvement until July 31, 2018 to the applicant.

C. On August 9, 2018, the applicant submitted a detailed statement of implementation of the improvement plan to the respondent, but failed to submit a re-audit report by the auditor of this case.

2) On September 19, 2018, when the respondent fails to submit a re-audit report that resolved the grounds for delisting by September 21, 2018, the respondent decided to delisting the applicant’s share certificates (hereinafter “instant de-listing decision”).

D. Determination of provisional disposition of this case

On September 21, 2018, the Claimant filed an application against the Respondent for provisional disposition suspending the validity of the Seoul Southern District Court 2018Kahap***** The above court accepted the application of the Respondent on October 8, 2018 and rendered a decision that the Respondent shall suspend the effect of the de-listing decision on September 19, 2018 with respect to the Respondent’s issued share certificates until the judgment on the merits became final. The Respondent shall not proceed with the reorganization sale procedure for the said share certificates.

E. Relevant provisions are listed in the KOSDAQ Market Listing Regulations ("Listing Regulations") and the Regulations on the Listing Regulations of the KOSDAQ market ("Enforcement Regulations") related to the case are listed in the annexed sheet.

2. Summary of the applicant’s assertion

The decision of delisting of this case is difficult to recognize its validity due to the following defects.

A. The assertion that the de-listing decision of this case was based on the invalid enforcement rule

Based on Article 33-4(7), (8), and (9) of the Enforcement Rule, the respondent rendered the instant decision of delisting. However, Article 33-4(7) and (9) of the Enforcement Rule of the current Enforcement Rule is null and void since it was not separately notified to, or obtained consent from, the applicant in advance during the amendment process, or is an amended term that unfairly unfavorable terms against the applicant against the legitimate interest and reasonable expectation of the applicant. Article 40(6) of the Listing Regulations restricts a listed corporation to be unable to file an objection against the de-listing decision, and thus, Article 33-4(8) of the Enforcement Rule delegated by, the above provision is null and void, since Article 33-4(7), (8), and (9) of the Enforcement Rule of the current Enforcement Rule does not limit the rights of the listed corporation to file an objection against the de-listing decision. Thus, the same is null and void in violation of the limitation of delegated legislation,

B. The assertion that Article 33(9) of the Enforcement Rule did not apply mutatis mutandis to the delisting maintenance system

According to Article 33(9) of the Enforcement Rule, when an auditor is unable to conduct an audit due to the occurrence of circumstances that prevent him/her from submitting a business report, semi-annual report, or quarterly report by the statutory deadline, the designation of administrative items or de-listing may be postponed for a certain period of time. The purpose of Article 33(9) of the Enforcement Rule is that it is not reasonable to give disadvantages to the company subject to audit even if the auditor fails to submit an audit report due to

The reason why the auditor of this case failed to submit a re-audit report is that an accounting firm in charge of conducting the audit of the applicant's subsidiaries (hereinafter referred to as the "Korean Film Corporation") and the accounting firm (hereinafter referred to as the "Canadian accounting firm") in charge of conducting the audit of the Canadian subsidiaries (hereinafter referred to as the "Canadian accounting firm") did not submit the audit report of the above subsidiaries (hereinafter referred to as the "subsidiary of this case"). Therefore, there is no reason attributable to the applicant. Accordingly, it is unreasonable that the respondent did not apply Article 33 (9) of the UCP and made the decision of delisting without applying Article 33 (9) of the Respondent.

C. Respondent's assertion that the improvement period is not appropriate

The Switzerland accounting firm and the Canadian accounting firm expressed their intent to complete the preparation of the audit report on the instant subsidiaries. The instant auditor also expressed his intent to submit the audit report to the applicant by October 31, 2018.

Therefore, even though the applicant could submit a re-audit report that terminated the reason for delisting until October 31, 2018, the respondent only granted the improvement period until July 31, 2018 to the applicant on April 23, 2018.

(d) argument that the applicant did not give an appropriate opportunity for improvement.

On September 19, 2018, when the respondent rendered a decision of delisting by C (hereinafter referred to as "C") on September 19, 2018, the respondent accepted C's request and set the deadline for submission of the re-audit report on September 28, 2018. The auditor of this case was the auditor of this case.

10. By September 31, 2018, the respondent expressed his/her intent to submit a re-audit report. Nevertheless, on September 19, 2018, the respondent set the deadline for submission of the re-audit report to the respondent on September 21, 2018.

Therefore, the respondent discriminates against the applicant and gives the applicant an opportunity to improve against the principle of fairness and proportionality.

3. Determination

If the following circumstances are gathered based on the records and the results of the examination of the case, it is difficult to deem that the materials submitted by the applicant alone are insufficient to recognize the validity of the de-listing decision of the case.

A. Whether Article 33-4(7) and (9) of the current Enforcement Rule are invalid

1) The Respondent’s listing regulations based on Article 390(1) of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) correspond to the Respondent’s self-regulation regulations established by the Financial Investment Services and Capital Markets Act by prescribing self-governing matters. In relation to listing contracts, the contents of a contract, i.e., the terms and conditions formulated in advance by an Exchange, a party to the contract, to enter into a listing agreement with a large number of applicants corporations, can be deemed as having the nature of a standardized contract. In addition, the said listing regulations cannot be denied that a listed corporation or a listed corporation, based on the legal basis, has a substantive normative nature as a provision that naturally applies to all applicants for listing (see Supreme Court Decision 2007Da34678, Nov. 15, 2007). Such a legal doctrine can also be applied to the detailed regulations enacted with the delegation of the listing regulations.

In light of the legal nature of the listing regulations and the enforcement regulations under the above legal doctrine (the self-governing regulations enacted based on the Capital Markets Act), it is difficult to view that the respondent has made prior notification or consent to the applicant and the listed company or the corporation applying for listing while amending Article 33-4(7) and (9) of the enforcement regulations. In addition, at the time of entering into the listing agreement, the applicant agreed to faithfully comply with the enforcement regulations that are amended in the future with the respondent. The respondent seems to have made prior notification to the listed company through the KOSDAQ Exchange Council in relation to the amendment of the listing regulations and the enforcement regulations.

2) However, if a specific provision of the Listing Regulations violates the principle of proportionality or the principle of equity and contains any content contrary to the legislative purpose or purport of the Act by excessively restricting the rights of listed corporations that are guaranteed by other Acts, such provision shall be deemed null and void (see Supreme Court Decision 2007Da34678, supra). Such a legal principle may also apply to the detailed rules enacted upon delegation by the Listing Regulations.

However, considering the following circumstances, it is difficult to view the content of Article 33-4 (7) and (9) of the current Enforcement Rule as null and void in light of the aforementioned legal principles as being contrary to the principle of proportionality or the principle of equity, compared to the previous provisions.

① Article 33-4(7) of the former Enforcement Rule provides that the Corporate Review Committee shall deliberate on de-listing within 15 days from the date of submission of a plan for deliberation on de-listing, and that it shall make a decision on de-listing within three days from the date of deliberation, except in extenuating circumstances.

Article 33-4 (7) of the current Enforcement Rule provides that the Corporate Review Committee shall deliberate on delisting and make a resolution within 15 days from the date of submission of the implementation statement of the improvement plan, except in extenuating circumstances.

Even according to Article 33-4 (7) of the current Enforcement Rule, the Corporate Review Committee does not necessarily have to deliberate and make a resolution on delisting within 15 days from the date of the submission of the implementation statement, etc. of the improvement plan without any exception, and if special reasons are recognized as the same as before the revision, the Corporate Review Committee still seems to have a discretionary power to deliberate and make a resolution on delisting at an appropriate time.

Article 33-4(9) of the current Enforcement Rule provides that "The respondent may extend the period by up to 15 days if he/she is scheduled to hold a corporate review committee after the due date of the meeting of the corporate review committee (such as judgment, decision, submission of audit report, etc.). The contents are the same as those provided for in Article 33-2(6) of the former Enforcement Rule. It is true that only the location of the provisions is changed.

(b) Whether Article 33-4(8) of the Enforcement Rule is invalid

1) Article 390(1) of the Financial Investment Services and Capital Markets Act provides that an Exchange shall prescribe the Securities Listing Regulations for the review of securities to be listed and for the management of listed securities, and the provisions of the Securities Listing Regulations pursuant to Article 390(2) of the same Act are listed. If a law delegates the autonomous matters of an Exchange, which is a public law organization, to the said regulations, the prohibition of comprehensive delegation legislation provided for in Articles 75 and 95 of the Constitution does not apply in principle (see Supreme Court Order 2003Ma1499, Jan. 16, 2004, etc.).

As a general and abstract provision enacted by the Respondent pursuant to Article 390(1) of the Capital Markets Act, the listing regulations of the Respondent have the function of supplementing the contents of the regulations in accordance with the delegation of statutes, and cannot be deemed as a legal order with external binding force. On the other hand, the regulations enacted based on the listing regulations are also deemed as having the characteristics of the Respondent's autonomous provisions, not the legal order, but the regulations enacted based on the listing regulations.

In light of the above legal principles, it is difficult to see that the principle of delegation of legislation and the principle of comprehensive wage payment as it is applied when the respondent establishes enforcement regulations. 2) In full view of the following circumstances, it is difficult to deem that the KOSDAQ-listed corporation is prohibited from filing a new objection against the de-listing decision by the respondent under Article 33-4(8) of the Enforcement Rule as it violates the principle of proportionality and the principle of equity, and thus, it is difficult to view that the content is invalid as it goes against the concept of justice or excessively limits the rights of listed corporations that are guaranteed by other Acts and subordinate statutes.

(1) Article 40(2) of the Listing Regulations provides a respondent with an opportunity to raise an objection to a listed corporation when the listing is abolished pursuant to Article 38(1) of the Listing Regulations. Article 33-4(8) of the Enforcement Rule prohibits a respondent from raising an objection again when it makes a decision of delisting after giving the representative of the listed corporation an opportunity to state his/her opinion pursuant to the above objection.

(2) If an objection against delisting is continuously granted to a listed corporation, it is likely that investors’ trust in the Stock Exchange might be undermined because a listed corporation falling under the grounds for delisting is not subject to timely delisting. Therefore, there is a need to properly restrict the objection against delisting by the listed corporation.

C. If we gather the following circumstances, it cannot be deemed that the respondent did not apply mutatis mutandis the de-listing maintenance system.

(1) Article 33(9) of the Enforcement Rule provides that the same provision shall apply mutatis mutandis to cases where an auditor is unable to conduct an audit by the statutory deadline for submission of a business report, semi-annual report, or quarterly report. Article 38(1)11 of the Listing Regulations (in cases where the auditor’s audit opinion is rejected, there is no ground for mutatis mutandis application of the same provision when a ground for formal delisting occurs.

② As seen in the foregoing paragraph, it cannot be deemed that there was no reason attributable to the applicant as to the failure of the instant auditor to submit the re-audit report that had ceased to have been de-listing.

D. Whether the improvement period was appropriately granted or not

According to Article 40(4) of the Listing Regulations and Article 33-4(4) of the Enforcement Rule, when there is an objection from a company against which the reason for delisting is notified, the respondent can determine whether to grant the improvement period through a corporate review committee, etc., but if the improvement period is granted, it shall not exceed six months unless there is any special reason.

Examining the following circumstances, it is difficult to view that there is any defect that the respondent granted the improvement period to the applicant on April 23, 2018 by July 31, 2018.

① On March 29, 2018, the applicant entered into a re-audit agreement with the instant auditor by setting the three months in which audit data was submitted, one month in which audit was conducted, and one month in which audit was conducted (Evidence 9).

② On April 23, 2018, the applicant asserted that a minimum of four-month improvement period should be granted by the KOSDAQ Enterprise Deliberation Committee, and that at least the improvement period was not claimed by October 31, 2018 (No. 14 pages and lawsuit No. 10).

(e) Whether an adequate opportunity for improvement has been given;

According to Article 33-4 (7) of the Enforcement Rule, unless there is a special reason, the respondent shall hold a corporate review committee and deliberate and decide on delisting by reflecting the results of implementation of the improvement plan, etc. within 15 days from the date on which the listed corporation submits a statement of implementation, etc. of the improvement plan.

However, considering the following circumstances, it is difficult to deem that the Respondent’s corporate review committee, solely based on the data submitted by the applicant, deliberated on the delisting of the applicant on September 19, 2018, and the applicant’s submission deadline for the re-audit report was set as of September 21, 2018, and that there was a special error in the resolution of the de-listing decision.

1) On March 22, 2018, the circumstances revealed by the instant auditor based on which the refusal of opinion was expressed in the audit report by the person’s audit report are the following: (a) the failure to secure sufficient audit evidence regarding the existence and integrity of claims and obligations; (b) the failure to secure sufficient audit evidence related to financial transactions with persons with a special relationship; and (c) the failure to secure sufficient audit evidence related to the purchase and transaction of tangible assets; and (d)

2) The applicant entered into a re-audit agreement with the instant auditor on March 29, 2018. However, on May 16, 2018, the instant auditor entered into a re-audit agreement with the instant auditor. However, the essence of the re-audit procedure is to obtain reliable audit reports on the applicant’s subsidiaries (Finch ENE CBac) and the Canadian local subsidiary (Fine ENE CBC), the applicant’s subsidiaries (Fine ENE), and requested the instant subsidiaries to replace the existing auditors of the instant subsidiaries with four accounting corporations or global accounting corporations, etc. (Evidence No. 18). Accordingly, the applicant requested that the instant subsidiaries replace the former auditors of the instant subsidiaries with BDO, etc. (Evidence No. 18).

6.5. Around June 7, 2018, between the Canadian accounting corporation and the Canadian accounting corporation, entered into an audit contract with each other with respect to the audit of its subsidiary.

In addition, the instant auditor around June 19, 2018 requested the applicant to conduct an appraisal by a certified public appraiser designated by the Philippines and the Canadian accounting corporation for tangible assets, etc. of the instant subsidiaries, the appraisal of tangible assets, etc. of the instant subsidiaries was conducted from the end of June 2018 to the end of July 2018.

In light of the above circumstances, the reason why the auditor of this case failed to submit a re-audit report by the deadline for submitting the re-audit report seems to be that the audit report on the subsidiaries of this case was not submitted. It is reasonable to deem that this was based on the circumstances that the applicant and the subsidiaries of this case did not properly operate the internal accounting management system. Therefore, it is difficult to deem that the applicant has no reason for failure to submit the re-audit report by the deadline for submitting the re-audit

3) On October 31, 2018, the applicant filed an application for provisional disposition of this case by asserting that a re-audit report with the content of changing the audit opinion as an adequate opinion can be submitted until October 31, 2018. However, the applicant has failed to submit the re-audit report as above until the lapse of the month from October 31, 2018.

4) On September 7, 2018, the instant auditor notified the applicant of the cancellation of the re-audit contract on the ground that the applicant was unable to submit the necessary data for the audit, such as a written statement, final financial statements, audit report of the instant subsidiaries, audit documents of the instant subsidiaries, documents related to material and technical construction, settlement of accounts, and ledger for receipt and payment of corporate seal impression, and that the applicant was unable to carry out most of the core audit procedures.

The Claimant concluded a re-audit agreement with the instant auditor on December 4, 2018. On December 6, 2018, the Luxembourg accounting firm prepared an audit report on a local subsidiary of the Canadian, but the Canadian accounting firm did not prepare an audit report on the Canadian subsidiary until now (the Canadian accounting firm is not able to prepare the audit report within the short period on the Canadian accounting firm on the sole basis of the statements in subparagraphs 32-1 and 2 of Category A).

According to the above circumstances, the auditor of this case cannot be deemed to have submitted the re-audit report within the short period.

5) On September 19, 2018, C had sufficiently explained that the corporate review committee may submit a re-audit report by September 28, 2018, and upon receipt of sufficient explanation, C was granted the deadline for submission of the re-audit report by September 28, 2018, and in fact submitted a re-audit report to the respondent around September 21, 2018. In light of the reasons and the lapse of the deadline for submission by C, it is difficult to deem that the respondent rejected the applicant’s request that the deadline for submission of the re-audit report was set on October 31, 2018 and the measure that the respondent did not comply with the applicant’s request is significantly unfair.

4. Conclusion

Therefore, the applicant's application is without merit, and the applicant's application is dismissed. It is so decided as per Disposition.

Judges Lee Chang-seop

Judges, History Scargs