Several small and medium enterprises have found themselves facing 'delisting' threats from the KOSDAQ due to issues of embezzlement and breach of trust involving the owner family. Even though they are listed companies, the closed management centered around the largest shareholders continues, leading to insufficient internal control mechanisms. Experts point out that systems are needed to enhance the 'transparency of governance.'
◇'Cheil Bio'… embezzlement and breach of trust revealed during management dispute
According to the Financial Supervisory Service on the 4th, Cheil Bio, a company specializing in animal pharmaceuticals, recently received a decision for delisting from the KOSDAQ market. Currently, Cheil Bio has filed for a suspension of the delisting decision, temporarily halting the liquidation trading.
The reason this company is facing a delisting crisis is due to the embezzlement and breach of trust by the owner family. This surfaced during the management dispute between Chairman Shim Kwang-kyung and his eldest daughter, former CEO Shim Yoon-jung.
In April 2023, the management dispute began when former CEO Shim passed a resolution in the board meeting to appoint herself as CEO instead of her father, Chairman Shim. Concurrently, Chairman Shim filed a request for a suspension of the effectiveness while presenting a motion for her dismissal, intensifying the family management dispute.
During this process, former CEO Shim filed a lawsuit claiming that she had been defrauded of 2.9 billion won by Chairman Shim and her second daughter, President Shim Ui-jeong, which led Cheil Bio to undergo a substantial eligibility review for listing. Former CEO Shim later filed another lawsuit claiming embezzlement and breach of trust amounting to 4.6 billion won.
Most of the charges against Chairman Shim for embezzlement and breach of trust were dismissed or not prosecuted, but the company’s performance significantly declined during this time. Revenue, which reached 15.3 billion won in 2022, dropped by 41% to 9 billion won in 2023, and the operating loss increased by 33%, from 1.5 billion won to 2 billion won during the same period.
◇'SAMYUNG ENC' also at risk of delisting… former CEO Hwang Jae-woo embezzled 24.9 billion
SAMYUNG ENC, a company specializing in fish finders, is also undergoing delisting procedures from KOSDAQ due to the embezzlement and breach of trust by the owner family.
In February, a 24.9 billion won embezzlement and breach of trust allegation against former CEO Hwang Jae-woo emerged, prompting a substantial eligibility review for listing. The amount of embezzlement was about twice the market capitalization at the time, leading to a halt in stock transactions starting February 11.
On the 7th of last month, the company received a 'disclaimer of opinion' from external auditors regarding its financial statements for the 2024 fiscal year, adding further reasons for delisting. The company submitted an objection to prevent delisting and is currently undergoing a period of improvement. The decision on whether to maintain the listing is expected to depend on the implementation of the improvement plan.
◇Experts point out issues of 'governance transparency'… Monitoring needs to be strengthened centered around the board of directors
Experts indicate that the embezzlement and breach of trust in listed small and medium-sized enterprises are structural issues stemming from a lack of 'governance transparency.'
Yoo Hyo-sang, director of the Unicorn Management and Economic Research Institute, noted, "From the moment a corporation is listed, it becomes public, yet many dominant shareholders continue to remain in the authoritarian practices of the pre-listed era," adding, "This attitude leads to embezzlement and breach of trust."
He also added, "The emergence of embezzlement and breach of trust cases is not unrelated to management disputes, due to a structure where even small amounts of money can shake the existing management."
In particular, the KOSDAQ market has a significantly lower ratio of outside directors within the board compared to the KOSPI, and most of them are often individuals with connections to the largest shareholders, which means the monitoring function is virtually non-existent.
Yoo continued, "The governance structure should be restructured centered around the board of directors to strengthen monitoring of the largest shareholders, and KOSDAQ companies should increase the ratio of outside directors to break free from a 'rubber stamp' board, and after establishing a formal basis, self-regulatory efforts by management should be added to address governance issues."