Still the whole procedure sounds a bit strange, I'm just using my common sense here.
When I buy a plane ticket to travel from LHR-AMS-KUL and I board at AMS the airline will not sell my empty seat thus, there is still a seat available. I am not causing any delay.
A consumer tv-program has tested this and (as espected) the tv presenter was denied to board the plane. A representative of the website
EUclaim | Startpage said it was a clear case of denied boarding.
Article 1 of the directive describes "denied boarding" as: a refusal to carry passengers on a flight, although they have presented themselves for boarding under the conditions laid down in Article 3(2), except where there are reasonable grounds to deny them boarding,
such as reasons of health, safety or security, or inadequate travel documentation
So I think you indeed are entitled a refund, but you don't want a refund later on, that would be serving mustard after the meal. You want to board the friggin plane.