Shin & Kim successfully represented clients in two meaningful and interesting cases: a preliminary injunction application to enjoin against de-listing procedures and a case regarding standards for exemption of a financial institution from seal imprint verification.

Preliminary Injunction to Enjoin KOSDAQ De-Listing

With the close cooperation of its Insolvency, Corporate, and Finance Groups, Shin & Kim was successful in maintaining a company’s listing on the KOSDAQ while it was undergoing rehabilitation, by obtaining a preliminary injunction to enjoin against enforcement of a decision to de-list the company from the KOSDAQ.

The Seoul Southern District Court granted a motion made by DIBOSS, a manufacturer and exporter of LCD related products, for a preliminary injunction on November 1, 2009 to enjoin its de-listing from the KOSDAQ.  The KOSDAQ had decided to de-list DIBOSS based on a report by an external auditor for the company.

While it was undergoing corporate rehabilitation, an external auditor of DIBOSS issued an adverse opinion on its deferred tax assets, citing as a reason the uncertainty of obtaining creditor approval for the company’s plan for rehabilitation.  Based on this unfavorable opinion, the KOSDAQ sought to de-list the company.  At the time, the company was proceeding with a rights offering with the court’s approval and therefore would have had sufficient capability to cope with any impairment of capital if its rehabilitation plan was approved by its creditors.  When DIBOSS objected to the KOSDAQ’s decision to de-list the company, the Korea Stock Exchange did not accept their objection, citing as a reason that the company failed to submit a revised auditor’s opinion by the deliberation date.  In response, Shin & Kim argued on behalf of DIBOSS that (i) the Korea Stock Exchange’s decision to de-list without considering whether or not the cited cause for such de-listing continues to persist and without affording the opportunity to cure such cause for de-listing infringes on a company’s guaranteed right to object, and hence, was illegal; and (ii) there is a need to give a cure period to cure the cause for de-listing, since a company undergoing rehabilitation can quickly resolve issues such as impaired capital if it obtains approval for its rehabilitation plan.  The court agreed and ruled that the KOSDAQ’s decision to de-list DIBOSS was in violation of law, depriving DIBOSS of its discretion to object to such decision. 

Shin & Kim’s Young-Ho Kim, who specializes in securities and finance, explained, “This ruling serves as a warning to the Korea Stock Exchange’s practice of de-listing firms when a revised auditor’s opinion is not submitted by the date of deliberation, and marks the first reversal by a court of a decision of the KOSDAQ to de-list a company based on the opinion of an external auditor.”  He added, “It is meaningful in that it opens the door to practically guaranteeing a company’s right to raise objections, as provided for in the listing regulations of the KOSDAQ.”

Prior to this case, Shin &Kim successfully argued for and obtained a Supreme Court ruling that nullified as illegal and void, the former securities market listing regulations that provided the commencement of rehabilitation procedures as grounds for de-listing.  Shin & Kim also recently successfully prevented Soyea Corporation from being de-listed during the listing review process, cementing Shin & Kim’s status as a leader in securities and finance litigation.

Scope of Financial Institutions’ Duty to Verify Seal Imprints

In another case, an employee forged the registered seal of his employer company, withdrew approximately 4.3 billion Won from the company’s trust account that was held in a securities investment firm and fled with such funds.  Afterwards, the company filed suit against the securities investment firm to recover the money, arguing the withdrawal by its employee was not valid.

On behalf of the securities investment firm, the Litigation Group at Shin & Kim successfully argued that the securities investment firm should be held harmless from any and all liability since it believed that the employee was authorized to withdraw monies from the trust fund and therefore, it fulfilled its required duty of care in relation to such withdrawal.

In agreement, the Seoul Central District Court ruled that, “The securities investment firm is exempted from any and all liability, given that (i) the employee had been in charge of conducting transactions for his company, (ii) the difference between the forged registered seal and the genuine registered seal was so negligible that it was nearly impossible for the naked eye to distinguish between the two, and (iii) the employee of the securities investment firm would not have been able to notice anything odd when comparing the folded withdrawal slip imprinted with the seal, with the seal registered in the computer system.” 

Shin & Kim’s Hee-Chan Byun, who argued this case, stated, “The ruling is significant in that the court acknowledged that it is difficult to identify any difference between a forged and genuine registered seal when they are imprinted on paper, and the duty of care exercised by an employee of a financial institution is fulfilled if that employee compares the length of the circumference of the registered seal and the space between characters.”

Reporter Sang-Won Yun news8@lawtimes.co.kr