Why Healthy Companies Leave the Market: Suspicions of Deliberate Delisting Persist

In 2017, a financially sound company with 100 billion won in net assets and 30 billion won in cash and cash equivalents was told by its external auditor that it would receive a “disclaimer of opinion.” The stock price plunged 95%, and the company was ultimately forced out of the market. The auditor said it could not obtain sufficient, appropriate audit evidence. In reality, the company refused to submit materials out of concern that wrongdoing by executives would be exposed. It was a predictable outcome that minority shareholders raised suspicions of a “deliberate delisting.”

A similar case emerged in 2023. A blue-chip company with 200 billion won in net assets and steady profits received a “qualified opinion due to a scope limitation.” The company received the same qualified opinion the following year and again the year after, and it was eventually delisted. It was given a one-year improvement period, but the result was another qualified opinion in 2025. The issue was the failure to submit materials related to impairment of a small asset that was not essential to the company’s continued operations. Had the company provided the materials or revised its financial statements, it might have received an unqualified opinion at least once. Instead, it received qualified opinions for three consecutive years on the same grounds, fueling minority shareholders’ suspicion that the delisting was planned to benefit the controlling shareholder.
  Suspicions persist because the gains and losses are clear. Even after delisting, the company’s main disadvantage is greater difficulty raising funds through the market. For companies with little need for financing, there may be limited benefit in staying listed. For controlling shareholders, delisting can be an opportunity: during the liquidation trading period, they can buy minority shares at bargain prices. After pushing out remaining shareholders and securing 100% ownership, they can sell the company at a higher price or take dividends for themselves. Minority shareholders, by contrast, face a collapsing share price, difficulty trading and a heavier tax burden.

In principle, the straightforward way for a controlling shareholder to remove all minority shareholders is a tender offer at a premium to the market price, but that is costly. Delisting can achieve the same goal without that expense. Delisting triggers such as capital impairment or insufficient revenue generally require a company to deteriorate. Failing to provide audit materials does not. While failure to file a business report can bring immediate criminal punishment, a company can exploit the vague boundary of “justifiable reasons” to withhold audit materials, induce a qualified opinion and still avoid criminal liability.
  Minority shareholders need meaningful compensation, but that has been difficult. Once delisting becomes likely, the stock price can collapse before the company suffers any direct economic loss. The mere fact that shares may become untradeable can drive prices down. In the 2017 case, minority shareholders sought damages for losses tied to delisting, but the court dismissed the claim. It classified the loss from the stock’s plunge as “indirect damage” stemming from a decline in the company’s assets. Although shareholders suffered from the price drop before any effect of reduced company assets could occur, the court treated the delisting as the result of executives’ management failure and still deemed it indirect damage. The company and executives effectively received a pass.

The harm does not end with delisting. If controlling shareholders delisted and simply left minority shareholders in place, there would be little reason to delist. The next step is to force-buy minority stakes at low prices, often through share consolidation or a cash-out comprehensive stock exchange. Under the current Commercial Act and Supreme Court precedents, share consolidations of 1,000-to-1 or 10,000-to-1 are possible, and can be repeated. If a minority shareholder falls short by even one share after consolidation, that shareholder can be pushed out for a low price. A cash-out comprehensive stock exchange can also remove shareholders at the liquidation trading price. Once the company becomes wholly owned, the controlling shareholder can distribute dividends freely. Assets built with minority shareholders’ contributions can end up entirely with the controlling shareholder, whether through liquidation or dividends.
  This amounts to taking others’ property, yet the law and courts allow it, underscoring why capital-market reform should not stop at revising the Commercial Act. On April 21, the National Assembly held a forum to discuss remaining tasks for protecting minority shareholders after the Commercial Act revision. Society should focus on building practical safeguards for minority shareholders forced out at bargain prices. One option is to create clear rules on liability for damages related to delisting. Share consolidation should be limited in ratio and frequency so it cannot be used to expel minority shareholders. The grounds for cash-out comprehensive stock exchanges should be restricted. And when market prices fail to reach net asset value, share valuation should reflect net asset value.




* This article has been translated by AI.

Copyright ⓒ Aju Press All rights reserved.