COVID-19 Impact... 69 Companies Apply for Penalty Exemption Due to Delayed Business Report Submission

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[Asia Economy Reporter Park Ji-hwan] So far, 69 companies have applied to financial authorities for exemption from administrative sanctions, citing difficulties in submitting business reports and other documents on time due to the spread of the novel coronavirus infection (COVID-19). Most of these companies have business sites or conduct major operations in China or in special infectious disease control areas such as Daegu and Gyeongbuk, which are directly affected by COVID-19. In some cases, concerns have been raised about policy abuse, as some companies are already in a distressed state, such as receiving a 'disclaimer of opinion' from auditors.

According to financial authorities on the 19th, a total of 69 companies applied for exemption from administrative sanctions for delayed submission of business reports from the 28th of last month until the day before. Among them, 41 were listed companies: 7 on KOSPI, 29 on KOSDAQ, and 5 on KONEX. The remaining 28 companies were unlisted.

The Financial Services Commission, together with the Financial Supervisory Service and the Korean Institute of Certified Public Accountants last month, decided to exempt administrative sanctions if business reports and other documents could not be submitted on time due to the impact of COVID-19.

Looking at the reasons for application, 47 companies had major business sites or subsidiaries located in China, the highest number. Six companies had major business sites or subsidiaries located in domestic special infectious disease control areas such as Daegu and Gyeongbuk. Ten companies applied citing delays in settlement and audits of local subsidiaries located in the U.S., Europe, Southeast Asia, and other regions.

Notably, seven companies currently undergoing delisting review procedures due to adverse audit opinions in 2018 were included. These include Hwajin, Lightron, Crova Hightech, East Asia Holdings, and KJ Pretech. Many of these applied for deadline extensions citing reasons such as manufacturing products in Chinese factories or conducting business activities in China.

In the case of Lightron, although the reasons for delisting have been resolved, the company is embroiled in litigation triggered by a recent management dispute. The company stated, "A subsidiary located in Wuhan, China, accounts for a significant portion of the consolidated financial statements, causing delays in external audits and financial statement preparation," but it had already disclosed a net profit of 4.2 billion KRW including its Chinese subsidiary at the end of February.

Crova Hightech also has business sites in China but announced a consolidated net loss of 7.4 billion KRW including its Chinese subsidiary at the end of last month. The company specifically cited "a decrease in sales due to poor performance of the Chinese (subsidiary) and domestic power business" as the reason for the poor results. Both companies applied for exemption from delayed submission despite reflecting most of the financial information from their Chinese business sites in their reports.

An official from the Financial Supervisory Service said, "We will carefully review whether the delay is unavoidable due to the impact of COVID-19 or if there is an intention to deliberately delay the delisting review process by abusing the exemption, and will consider whether to grant exemption from sanctions in the future."

The financial authorities plan to conduct document reviews for the companies that applied this time and decide on the final exemption from sanctions through the Securities and Futures Commission meeting scheduled for the 25th. If selected for exemption, business reports may be submitted up to 45 days late from the end of March, and audit reports up to 45 days late from the end of April without penalties.

This content was produced with the assistance of AI translation services.