2020 Year-End Closing Season Approaches... "Carefully Review the Financial Status of Listed Companies"

Exchange Advises Investors and Listed Companies on Precautions
Review Delisting Conditions and Financial Stability

Provided by Korea Exchange

[Asia Economy Reporter Minwoo Lee] The Korea Exchange has issued a notice to investors ahead of the 2020 fiscal year settlement season, advising them to exercise caution. Since decisions such as delisting are made based on the settlement details, careful review is essential.

On the 8th, the Korea Exchange announced the '2020 Fiscal Year Settlement Related Market Participant Precautions' containing this information. According to the Exchange, among 134 companies delisted in the past five years, 32.1% (43 companies) were delisted due to settlement-related issues. Among these, 83.7% (36 companies) were due to 'non-standard audit opinions,' which accounted for the largest proportion. Capital erosion accounted for 11.6% (5 companies).

They also urged careful attention to the appointment of outside directors. Listed companies must appoint outside directors constituting at least one-quarter of the total number of directors (for listed companies with total assets of 2 trillion won or more, at least three outside directors and a majority of the total directors). Outside directors of listed companies cannot concurrently serve as directors, executive officers, or auditors of two or more other companies (including unlisted companies) excluding the listed company itself. Additionally, they cannot concurrently hold positions as full-time executives of affiliates of the listed company. If retired from an affiliate of the listed company within three years, they cannot serve as outside directors of the listed company. The term of office for outside directors cannot exceed six years at one company (nine years including affiliates).

Attention should also be paid to the appointment of auditors. The Exchange may designate a company as a management item if it fails to form an audit committee as stipulated by the Commercial Act or does not meet the requirements for forming an audit committee. This is also grounds for delisting. Listed companies with total assets of 100 billion won or more must appoint at least one full-time auditor, and those with total assets of 2 trillion won or more must establish an audit committee.

The Exchange emphasized that listed companies must disclose audit reports immediately upon receipt from external auditors and exercise special caution regarding the appointment of outside directors and auditors as well as the holding of shareholders' meetings. In particular, this year, due to the amendment of the Enforcement Decree of the Commercial Act (Article 31, Paragraph 4), it is mandatory to provide shareholders with audit reports and business reports at least one week before the regular shareholders' meeting.

Investors were also advised to be especially cautious when investing in companies with insufficient management stability or poor financial conditions, as unexpected investment losses may occur during the settlement season.

A Korea Exchange official stated, "We will establish a cooperative system with external auditors regarding the submission of audit reports to promote prompt disclosure of audit reports," and added, "We plan to take timely market measures against companies with non-standard audit opinions."

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