2016Na2002473 Invalidity of the Delisting Decision

A Stock Company

Law Firm LLC et al., Counsel for the defendant-appellant

Attorney Southern Young-gu, Counsel for the plaintiff-appellee

B A.

Attorney Cho Jae-il, Counsel for the defendant-appellant

Seoul Southern District Court Decision 2015Kahap104238 Decided December 18, 2015

June 29, 2016

7, 2016. 15

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

The judgment of the first instance is revoked. On March 31, 2015, the Defendant confirms that the decision of delisting made against the Plaintiff’s issued share certificates is null and void.

1. Basic facts

A. The status of the parties concerned. The defendant is a company that performs the business of opening and operating the securities market, the KOSDAQ market, etc., and the plaintiff is a company that performs the business of exploration and development of domestic and overseas resources such as Damond Won, gold, and spatho, and whose shares are listed on the KOSDAQ market operated by the defendant and is subject to a de-listing decision as to its shares.

(b) Procedures for delisting of the KOSDAQ market pursuant to the regulations on listing of the KOSDAQ market (hereinafter referred to as the "Listing Regulations") and the regulations on listing of the KOSDAQ market (hereinafter referred to as the "laws on listing");

1) Article 38 of the Listing Regulations lists reasons why the Defendant may make a decision of delisting on the securities of a company listed on KOSDAQ. Among them, Paragraph 1 of the same Article stipulates the reason why the listing should be removed as necessary, and Paragraph 2 of the same Article stipulates the reasons why the listing may be abolished following the substantive examination of listing eligibility by the KOSDAQ Enterprise Review Committee (hereinafter referred to as the “Enterprise Review Committee”).

2) Article 38(2)5(b) of the Listing Regulations provides that “Where the suspicion of embezzlement and breach of trust of the size prescribed by the detailed regulations at the time is confirmed through public disclosure, etc. due to the commencement of the substantive examination of qualifications for listing, and it is deemed necessary to de-listing by comprehensively taking into account the continuity of the company, transparency in its management, and soundness in the KOSDAQ, etc.” Article 33(11)2 of the Enforcement Rule provides that “in the case of an executive officer” with respect to the scale of embezzlement and breach of trust, which is the cause for the commencement of the substantive examination of qualifications for listing, the amount of equity capital is more than 3/100 of equity capital or the amount of embezzlement and breach of trust is more

3) Detailed delisting procedures applicable in the event that reasons set forth in Article 38(2) of the Listing Regulations arise are as follows:

Article 38(2) of the Listing Regulations provides that a corporate review committee may grant a period of improvement to the relevant listed corporation prior to the determination of delisting (Article 38-2(4) of the Listing Regulations). After determining whether to delisting, the corporate review committee notifies in writing the corporation subject to delisting of the reason and grounds for delisting and the purport that it may raise an objection against delisting (Article 40(1) of the Listing Regulations). A corporation subject to delisting may raise an objection to the Defendant within seven days from the date of receipt of the above notification, and if there is an objection, the company may decide whether to delisting after deliberation and resolution by the KOSDAQ Committee (hereinafter referred to as the “Market Committee”) (Article 40(2) and (3) of the Listing Regulations. ○ Defendant may allow trading of the final stocks determined to be delisting to the extent that it does not exceed seven days (7 days from the date of approval of delisting) from the date of approval of delisting (Article 47 of the Listing Regulations and the regulations for temporary adjustment of transactions, such as “temporary trading”).

C. Progress of delisting procedure against the Plaintiff’s share certificates

In accordance with the following procedures, the Defendant proceeded with the de-listing procedure for the Plaintiff’s share certificates (hereinafter “De-listing”).

(1) Deliberation by the Corporate Review Committee and granting the improvement period;

On July 9, 2014, the representative director C of the Plaintiff was indicted for a violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) on the ground that he/she committed a breach of trust, etc. against the Plaintiff (Seoul Central District Court 2014Dahap812). The above case was consolidated with the Seoul Central District Court 2013Dahap160, 2014Kahap413 and 2013. On July 10, 2014, the Corporate Review Committee selected the Plaintiff as a subject of the substantive examination of listing eligibility under Article 38(2)5 (b) of the Listing Regulations and Article 33(11)2 of the Enforcement Rule of the Listing Regulations. On September 2, 2014, the period for the improvement of management normalization was granted to the Plaintiff on September 2, 2014.

2) On March 31, 2015, the Corporate Review Committee rendered a decision of delisting against the Plaintiff according to the result of the review on listing eligibility as follows.

A) From the perspective of business continuity, there is uncertainty in business continuity, such as continuing operations of the existing business and failing to implement the improvement plan, such as gold and multimond distribution business, which is a new business.

B) From the perspective of financial soundness, from the perspective of financial soundness, the financial structure is weak, such as the continuation of capital erosion, and the improvement plan for financial soundness such as liquidation of defective affiliated companies has not been implemented.) From the perspective of financial transparency, the implementation of the improvement plan, such as the replacement of management, the internal control regulation, and the improvement of the internal accounting center system, was implemented. However, the three of the resigned directors, such as C, etc., who are the breach of trust, are in office as an unregistered executive, and the acquisition of shares by C, which was the strengthening plan for

3) Plaintiff’s objection and review result of the market committee

On April 10, 2015, the Plaintiff filed an objection against the said de-listing decision by the Corporate Review Committee. However, on May 6, 2015, the Market Committee decided to de-listing of the Plaintiff’s share certificates based on the judgment that the business sustainability is uncertain, the vulnerability of the financial structure is continuing, and the vulnerability of the financial structure exists. The Market Committee set the period for arranging the Plaintiff’s share certificates from May 8, 2015 to May 18, 2015, respectively, as “from May 19, 2015,” the period for arranging the Plaintiff’s share certificates was set as “from May 8, 2015 to May 19, 2015,” and the procedure for the de-listing was fully implemented.

(d) The progress of criminal cases against C;

1) On January 23, 2015, the Seoul Central District Court sentenced C to one year and six months of imprisonment with prison labor for a criminal case against C on January 23, 2015 (hereinafter “C”) and sentenced two years of the suspension of execution (the same court’s 2013 senior Gohap160, 2014 senior Gohap413 (Merger), and 812 (Merger). The above court found C guilty only of the violation of the Act on the Aggravated Punishment, etc. on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) that C has committed a breach of trust with property damage equivalent to KRW 11 billion against the Plaintiff, and acquitted the remainder.

2) The prosecutor appealed the above judgment, and the Seoul High Court sentenced 5 years of suspended sentence to C on February 3, 2016 at the appellate court (Seoul High Court 2015No548, hereinafter referred to as "relevant criminal judgment"). The relevant criminal judgment found Defendant guilty of all the charges in relation to the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Misappropriation) that C committed a breach of trust with about 11 billion won against the Plaintiff, and found Defendant and the Prosecutor guilty of the violation of the capital market and the Financial Investment Services and Capital Markets Act due to fraudulent illegal transactions between the Plaintiff and C. The appeal against the relevant criminal judgment was filed by the Defendants, including the Plaintiff, and the Prosecutor, and the final appeal is pending in the Supreme Court (the Supreme Court 2016Do3411).

[Reasons for Recognition] The facts without dispute, Gap evidence 1, 4, and 23 each 1, 2, Gap evidence 2, 5 through 8, Gap evidence 3-1 to 5, Eul evidence 3, and the purport of the whole pleadings

2. Determination on the defense prior to the merits

A. The defendant's argument

Since the execution of reorganization trading procedures, which are subsequent procedures following the decision of delisting of this case, has already been completed, and it is de facto impossible to restore to the prior decision of delisting of this case, there is no benefit to seek confirmation to nullify the decision of delisting of this case.

B. Determination

In light of the following circumstances, the Defendant’s prior defense on the merits that the Plaintiff did not have any interest in seeking confirmation of invalidity of the delisting decision is without merit.

1) The reorganization trading procedure is merely a procedure that gives an opportunity to make a transaction in the KOSDAQ market for a certain period to the shareholders holding the share certificates for which delisting becomes final and conclusive, and the validity of the share certificates issued by the Plaintiff is not extinguished upon completion of the reorganization trading procedure. Therefore, the share certificates issued by the Plaintiff may be traded in the KOSDAQ market if the decision of delisting becomes invalid.

2) Pursuant to the Financial Investment Services and Capital Markets Act, a stock-listed corporation may enjoy special cases such as more lenient restrictions on the issuance and allocation of stocks, the limit of nonvoting stocks, etc. (see, e.g., Articles 165-6 and 165-15).

3. Judgment on the merits

A. The plaintiff's assertion 1)

1) The assertion that Article 38(2)5(b) of the Listing Regulations becomes invalid

Article 38(2)5(b) of the Listing Regulations, which provides that a certain size of embezzlement and breach of trust may commence the substantive examination of listing eligibility if it is confirmed through public disclosure, etc., is null and void as it constitutes a provision contrary to the concept of justice or excessively restricting the rights of listed corporations for the following reasons. Accordingly, the delisting of this case is also null and void.

A) Article 38(2)5 of the Listing Regulations provides that “Where a company falls under any of the following, and it is deemed necessary to delisting considering its continuity, transparency in management, and soundness in the KOSDAQ market” as a requirement for delisting. Therefore, Article 38(2)5(b) of the Listing Regulations does not merely include the requirements for commencement of the substantive examination of listing eligibility, but also constitutes part of the requirements for delisting.

B) The mere fact that there was an agreement on embezzlement and breach of trust so that the subject matter of the substantive examination of listing eligibility is against the principle of presumption of innocence, and is likely to be abused as an unfair means to receive confession during the investigation process, and thus, excessively restricting the rights of listed corporations.

C) In the case of rehabilitation procedures, an application for commencing rehabilitation procedures itself is not subject to the substantive examination of listing eligibility, while taking the subject of the substantive examination of listing eligibility as the subject of the substantive examination solely on the ground that the occurrence of embezzlement and breach of trust occurred is contrary to the principle of equity. In addition, Article 38(2)5(b) of the Listing Regulations provides for cases where specific facts, such as serious violation of regulations, loss from damage, and change of management rights, are confirmed, whereas Article 38(2)5 of the Listing Regulations provides for cases where only the suspicion is suspected, rather than the fact of embezzlement and breach of trust, it does not conform to the equity among the requirements for the substantive examination

D) The abstract contents, such as the continuity of a company, transparency in business management, and soundness of the KOSDAQ market, are prescribed as the requirements for the substantive examination of listing eligibility, so it is difficult to predict whether it falls under those requirements, and it is inevitable to determine whether it is eligible for listing according to arbitrary requirements.

2) Even if the listing regulations and enforcement regulations, which form the basis for the decision of delisting the Plaintiff’s assertion that the decision of delisting was invalid because it did not go through lawful procedures, are valid in light of the following circumstances, the decision of delisting of this case is unlawful and invalid by the decision that was rendered without going through legitimate procedures and no ground for delisting exists. (A) The Plaintiff submitted the management improvement plan to obtain the improvement period after being selected as the object of the substantive examination of listing eligibility, and Article 33-4(4)2 of the Enforcement Rule provides that the improvement period may not exceed six months unless there are special reasons, barring special circumstances. However, as the Plaintiff could perform normal business activities due to the strong and intensive investigation by the investigative agency of the Plaintiff at that time, even if there were special reasons for granting the improvement period exceeding six months, the Defendant granted only six months.

B) Although the substantive examination of listing eligibility was commenced according to C’s embezzlement and breach of trust, the examination of the Plaintiff’s reason for delisting ought to be conducted separately. However, since the profitability of the Lmond business that the Plaintiff proceeds from D is recognized, corporate continuity is also recognized. In addition, prior to the decision of delisting, the Plaintiff received an audit report submitted by the Plaintiff to the Defendant, “the audit opinion’s opinion” in the audit report submitted by the Plaintiff, and was assessed on April 15, 2015 that the company’s stability ratio is more favorable than the average industry. Accordingly, the Plaintiff’s reason for delisting cannot be recognized.

B. Determination

1) Determination as to the assertion that Article 38(2)5(b) of the Listing Regulations is invalid

A) Listing Regulations are provisions that are naturally applicable to all listed corporations or companies applying for listing, based on the provisions of the relevant Act, and have a practical normative nature. Therefore, matters that do not conform to the purport of the relevant Act cannot be said to be its content. If a specific provision of the Listing Regulations violates the concept of justice by significantly violating the principle of proportionality or the principle of equity, or contains contents that are contrary to the legislative purpose or purport of other Acts by excessively restricting the rights of listed corporations that are guaranteed by other Acts, such provision shall be deemed null and void (see, e.g., Supreme Court Decision 2007Da1753, Nov. 15, 2007).

B) However, in light of the following circumstances that are recognized based on the overall purport of the oral argument in the facts acknowledged earlier, Article 38(2)5(b) of the Listing Regulations cannot be deemed as going against the concept of justice or to have reached the degree of excessive restriction on the rights of the listed corporation, and thus, the Plaintiff’s assertion on this part cannot be accepted.

(1) Article 38(2)5 of the Listing Regulations stipulates that a listed company shall be subject to the substantive examination of listing eligibility by comprehensively taking into account the continuity of the company, transparency in its management, soundness of the KOSDAQ market, etc. Therefore, Article 38(2)5(b) of the Listing Regulations cannot be deemed as a requirement of delisting, and only the intent of Article 38(2)5(b) of the Listing Regulations is the beginning of the commencement of the substantive examination of listing eligibility in cases where the suspicion of embezzlement and breach of trust was disclosed. In the reality that it is impossible to conduct the substantive examination of listing eligibility for all listed companies, there is a need to stipulate that a listed company should be subject to the substantive examination of listing eligibility by comprehensively considering the continuity of the company and the continuity of its management, transparency in its management, soundness of the KOSDAQ market, etc.

(2) The principle of presumption of innocence refers to the principle that a criminal suspect who has not yet been prosecuted as well as a criminal suspect who has not yet been prosecuted should, in principle, be treated as a person without a crime until a final and conclusive judgment of conviction has been rendered, and a disadvantage shall not be inflicted, and even if such disadvantage has been inflicted, it shall be limited to the minimum necessary extent even if it had been inflicted (see, e.g., Constitutional Court Order 2010Hun-Ma418, Sept. 2, 2010). However, the defendant has a duty to assess whether a listed corporation’s listing eligibility is maintained in order to protect investors in good faith in the future, and a listed corporation has a duty to authorize them to undergo such examination. It is difficult to evaluate that the listed corporation is subject to substantive examination of listing eligibility. Moreover, if the real examination of listing eligibility becomes possible after the judgment of conviction of embezzlement and breach of trust becomes final and conclusive, there is a concern that investors may be confusion in relation to the listing eligibility of the relevant listed corporation for a considerable period of time. Therefore, it is difficult to view that the provision is likely to impose more disadvantages.

(3) The fact that an application for commencing a procedure for commencing a procedure is not considered as the beginning of a substantive examination of listing eligibility is likely to make a listed company clear of insolvency early through an application for commencing a procedure for commencing a procedure for commencing a procedure for commencing a procedure. This is presumed to be due to the fact that there was a policy consideration that a listed company’s early withdrawal of an insolvent company, thereby going against the ideology of the delisting system, such as the stabilization of trading markets and the protection of investors (see Supreme Court Decision 2007Da1753, Nov. 15, 2007).

On the other hand, with regard to cases where the suspicion of embezzlement or breach of trust is confirmed through public disclosure, it is difficult to find policy needs to not take place as the beginning of the substantive examination of listing eligibility. (3) Article 38(2)5 of the Listing Regulations provides that "the continuity of a company, transparency in its management, and other soundness in the KOSDAQ market" as the requirements for the substantive examination of listing eligibility. In addition, the "Standards Table for the substantive examination of listing eligibility for the KOSDAQ market" of the Guidelines for the substantive examination of listing eligibility provides detailed items for the substantive examination of listing eligibility. Accordingly, it is sufficiently sufficient that a listed corporation as the subject of the substantive examination of listing eligibility should take any aspect as the subject of the substantive examination of listing eligibility. While the Plaintiff did not give points to each subject of the listing eligibility under the Listing Regulations or the Guidelines for the substantive examination of listing eligibility for the KOSDAQ market, it is difficult to deem that the subject of listing is not easy to measure due to the nature of the subject of the substantive examination of listing eligibility, and thus, it is difficult to deem that the subject of listing examination lacks objectivity or prediction of items.

2) Determination as to the assertion that the delisting decision of this case is invalid

In light of the following circumstances acknowledged earlier and the evidence Nos. 6, 20, and 29 comprehensively based on the purport of the entire pleadings, it cannot be readily concluded that there was a serious fault in the decision of delisting, and there is no other evidence to acknowledge it. Accordingly, the Plaintiff’s assertion premised on this cannot be accepted.

A) Article 33-4(4)2 of the Enforcement Rule provides that the improvement period may not exceed six months, except in extenuating circumstances. Although the investigation of embezzlement and breach of trust was under way at the time of the actual examination of listing eligibility with the Plaintiff, such investigation does not constitute a special reason for granting the improvement period exceeding six months as a natural procedure for the suspicion of embezzlement and breach of trust. Furthermore, the relevant criminal judgment does not have any ground for deeming that the above investigation was unfair, such as where the facts charged with embezzlement and breach of trust in the relevant criminal judgment are judged guilty at the appellate court. Even if there is no special reason as alleged by the Plaintiff, it is difficult to deem that there was procedural illegality in the delisting of this case, unless there exists any ground for recognizing that the improvement period was unreasonably short of six months.

B) Article 38(2)5(b) of the Listing Regulations provides that where a suspicion of embezzlement and breach of trust exceeds a certain size is confirmed through public disclosure, etc., the commencement of the substantive examination of listing eligibility shall be the beginning of the substantive examination. Article 33(11)2 of the Enforcement Rule provides that “If an executive is an officer, at least 3/100 of his/her equity capital or at least 1 billion won shall be the amount of embezzlement and breach of trust.” As seen earlier, C, the Plaintiff’s executive officer, was indicted for the charge of embezzlement and breach of trust of KRW 11 billion, and the relevant criminal judgment in the appellate trial is still pending in the Supreme Court, recognizing the conviction of all the facts charged, which satisfies the requirements as the beginning of the substantive examination required by the Enforcement Rule.

C) The fact that the suspicion of embezzlement and breach of trust exceeding a certain size is confirmed is nothing more than the beginning of whether the listing eligibility is subject to the substantive examination pursuant to Article 38(2)5(b) of the Listing Regulations. The main reason for which the substantive examination of listing eligibility has commenced against the Plaintiff is that it is recognized that delisting is necessary when comprehensively considering the continuity, transparency in management, and soundness of the KOSDAQ pursuant to the main sentence of Article 38(2)5 of the Listing Regulations. The Defendant’s Corporate Review Committee and the Market Committee determined that the Plaintiff did not have the listing eligibility on the grounds that the sales performance is not merely based on the delisting’s embezzlement and breach of trust, but rather on the ground that the actual examination of listing eligibility is insufficient, that the production of multimond is unclear, that the production of multimond is deepened, that the capital transparency is damaged, that the internal control system has not been established, and that management stability is weak.

D) The relevant criminal judgment found guilty of the Plaintiff and C’s violation of the Financial Investment Services and Capital Markets Act due to fraudulent unfair trading, and determined that the Damond estimated quantity (420 million Won) of D mine promulgated by the Plaintiff is difficult to be considered as a figures supported by objective and scientific exploration results. Accordingly, the Plaintiff’s assertion that D mine Damond business profitability was recognized, and there was no ground for delisting cannot be accepted.

E) The proper opinion in the accounting audit report is merely that financial statements, etc. have been prepared appropriately in accordance with the accounting standards, and it cannot be deemed that there was no reason for delisting in terms of corporate continuity, financial soundness, business transparency, etc. on the ground that the Plaintiff received an adequate opinion in the audit report. In addition, the review of whether the Plaintiff’s assertion that he/she was issued from the E-accounting corporation falls under the de-listing requirement and the review of the stability ratio is not an audit

In addition, it is merely a conclusion calculated based on the data provided by the Plaintiff and it cannot be determined solely on the result of the review.

F) Even if, as alleged by the Plaintiff, according to the review of the de-listing requirement of E-accounting firm, it did not meet the requirements for de-listing under Article 38(1) of the Listing Regulations. As seen earlier, the instant de-listing does not constitute Article 38(1) of the Listing Regulations that provides for de-listing if certain formal requirements are satisfied, but rather pursuant to Article 38(2) of the Listing Regulations that provides for the examination of the necessity of de-listing and determination of de-listing. Therefore, the Plaintiff’

3. Conclusion

Thus, the plaintiff's claim of this case shall be dismissed as it is without merit. Since the judgment of the court of first instance is just in conclusion, the plaintiff's appeal is dismissed as it is without merit.

The presiding judge, appointed judge

Judges Dokwon Line

Judges Lee Jin-hee

1) In addition to the following arguments, Article 33-4(4) of the Enforcement Rule is null and void, and Article 33-4(4) of the Enforcement Rule is granted to the Plaintiff.

Although the delisting of the instant case was not invalidated due to the lack of such assertion, the allegation on the grounds of appeal No. 5 on April 19, 2016

The part concerning the judgment of the first instance court was not disputed. Accordingly, the court's explanation about the plaintiff's assertion and judgment on this part is not relevant.

Inasmuch as the description from 14th to 12th 7th tier of the first instance judgment is the same as that of the first instance judgment, it shall be in accordance with the main sentence of Article 20 of the Civil Procedure Act.

shall be quoted as follows.