Seoul court voids the Korea Exchange rule that delisted firms for falling below a market-cap floor

The court objected to procedure and timing. The exchange had classed a market-cap shortfall as a formal delisting ground, on par with default or capital erosion, so a company had no way to object or respond ^[3]. The judges held that market value also moves with economic shocks and shifts in investment flows that a company largely cannot control ^[4]. A firm that falls short, they said, must get to argue its recovery prospects through an appeal or a review by the exchange's corporate screening committee ^[4]. "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," the court said ^[5].

The size of the raise mattered. On KOSDAQ the floor went from 4 billion won to 20 billion won ^[6], five times the old bar ^[1]. The exchange's own analysis found that as many as 94 KOSDAQ companies could fall into the delisting pool ^[7]. The roughly 30 now facing removal are about a third of that estimate ^[8][2]. The exit test got harder too. A company on administrative watch used to recover by holding the threshold for 30 of 90 trading days, including 10 in a row; the new rule demanded 45 consecutive days ^[9]. The required unbroken run is four and a half times as long ^[3], asked of a stock whose watch designation itself weighs on the price, and the court found too little empirical evidence to justify it ^[10].

Companies were suing before the decision. Counting the firms named in Seoul Economic Daily's reports, at least ten have gone to court since July ^[4]. The revised Commercial Act adds a reason to file that has little to do with the odds. It strengthened directors' fiduciary duty to shareholders, so a company that lets a delisting stand could face shareholder suits, according to a legal industry official quoted by the paper ^[13]. "Directors are also likely to file for injunctions to avoid disputes over their own liability," the official said ^[14]. A lawyer who represented the companies 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." ^[15]

If the ruling on the merits confirms this reasoning, the rule stays void ^[16]. If the exchange wins there or on appeal, the delistings now on hold would restart together. The exchange can also move first: a legal industry official told Seoul Economic Daily that it faces pressure to halt delisting procedures entirely or to rewrite its rules with a right of objection and transitional measures ^[17]. Regulators had already given some ground. Last month, citing the market downturn, they delayed the 30 billion won threshold by six months to July next year ^[18].

I think the exchange takes the third path and ends up with a slower version of the same tool. Seoul Economic Daily, citing observers, reported that forced delistings on market-cap grounds have become virtually impossible ^[19]. That goes further than the court did. The judges objected to a missing hearing and an early start date ^[3][2], and a floor that comes with an objection right still removes companies, only later and one review at a time. Until then, the exchange spends its effort defending the rule in at least ten cases ^[4], and the value-up plan to push weak firms out early waits ^[20]. This view is wrong if the main case or an appeal upholds the rule as written, or if a revised rule with an objection step clears the pool at the pace the 94-company estimate implied ^[7].