Korea to boost autonomous corporate rehabilitation

[Photo by Han Joo-hyung]

As the economic downturn in South Korea has led to a surge in the number of small and medium-sized businesses filing for bankruptcy and rehabilitation, the country’s courts have significantly strengthened the voluntary reorganization system, where a third-party restructuring expert mediates a company’s rehabilitation under court management instead of the creditors who lent money to the company. The Corporate Restructuring Promotion Act, which has been extended as a temporary law, with creditor banks largely leading the debate, but there is already criticism that it infringes on companies’ property rights.

According to the legal circle on Sunday, the Seoul Bankruptcy Court plans to introduce an autonomous restructuring support (ARS) program following a decision by the court’s full bench in mid-December 2023. The court formed a task force of its own judges in June to improve the system and came up with the program, which was inspired by the latest insolvency laws in Europe. The core of the amendment is allowing restructuring professionals, rather than banks, to mediate the normalization of business management and operations. Under the new system, the debtor company will request the facilitator of their choice when filing for the ARS, and the creditor committee will discuss and decide whether it agrees.

If it does not agree, the court will require the company to appoint a different facilitator who can be appointed from a list of candidates including conservators, chief restructuring officers (CROs), mediation committee members, law firm attorneys, or accountants. After being appointed, the facilitator will preside over the consultation process and report to the court and the creditors’ committee on the progress of the proceedings. During this period, the court could order creditors to suspend forced execution.