Corporate Rehabilitation and Bankruptcy Attorney – Incheon Songdo, South Korea Legal Services

Companies facing financial difficulties in South Korea have legal remedies available through corporate rehabilitation and bankruptcy procedures. We will examine in detail which procedures should be chosen when companies in Incheon Songdo International City and surrounding areas face financial crisis situations, and what the characteristics and advantages and disadvantages of each procedure are.

1. Understanding Corporate Rehabilitation Procedures and Legal Basis

Corporate rehabilitation procedure is a process in which debtors facing business difficulties efficiently rehabilitate their business or economic value by adjusting the legal rights of interested parties under the management and supervision of the court.

Corporate rehabilitation procedures are conducted based on the Debtor Rehabilitation and Bankruptcy Act (hereinafter ‘Debtor Rehabilitation Act’) in South Korea. Article 34 of the Debtor Rehabilitation Act stipulates that rehabilitation procedures can be commenced “when there is a risk of facts that could cause bankruptcy or when such facts exist, in order to promote the rehabilitation of the debtor.”

The core of this procedure is to help companies overcome financial difficulties while keeping them alive rather than liquidating them. Therefore, it is a suitable procedure for companies that are facing temporary business difficulties but have rehabilitation potential.

Characteristics of corporate rehabilitation procedures are as follows. First, debtors can continue their business under court supervision while maintaining corporate management rights. Additionally, with the commencement of rehabilitation procedures, compulsory execution and enforcement of security rights are suspended, allowing companies to stably focus on rehabilitation work.

2. Corporate Rehabilitation Application Requirements and Procedures

To apply for corporate rehabilitation, there must first be facts that could cause bankruptcy or there must be concerns that such facts will arise. Specifically, applications are possible when the company is in a state of insolvency or inability to pay debts.

Corporate rehabilitation application procedures proceed as follows. According to Article 36 of the Debtor Rehabilitation Act, a rehabilitation application must be submitted to the competent court. The application must detail the cause and reason for the rehabilitation application, the debtor’s financial situation, business content and current status.

When filing a rehabilitation application with Incheon District Court in South Korea, documents such as property lists, balance sheets, income statements, and creditor lists must be submitted along with the application. These documents serve as important materials for the court to determine whether to commence rehabilitation procedures.

When the court receives a rehabilitation application, it preserves the debtor’s assets through preservation measures and makes a decision to commence rehabilitation procedures. Once rehabilitation procedures commence, an administrator is appointed or the debtor conducts autonomous management.

3. Concept and Characteristics of Bankruptcy Procedures

Bankruptcy procedure is an execution procedure that liquidates and distributes the debtor’s assets to distribute them fairly to all creditors. Unlike corporate rehabilitation, bankruptcy is a procedure aimed at liquidating companies.

Article 305 of the Debtor Rehabilitation Act stipulates that bankruptcy can be declared “when the debtor is in a state of inability to pay or insolvency.” Bankruptcy procedures are applied to companies that are judged impossible to rehabilitate or companies whose rehabilitation procedures have failed.

Characteristics of bankruptcy procedures are that the corporate legal personality is extinguished and all assets are liquidated and distributed to creditors. A bankruptcy trustee is appointed to manage the debtor’s assets and handle liquidation work.

Since bankruptcy procedures aim for complete liquidation of companies, they are suitable procedures for companies with no possibility of continuing business or companies with little rehabilitation potential. However, even in bankruptcy procedures, there are cases where some value of the company can be preserved through business transfer or business relocation.

4. Bankruptcy Application Requirements and Process

Bankruptcy applications can be made by debtors, creditors, legal representatives, etc. The causes of bankruptcy include inability to pay and insolvency, and bankruptcy applications are possible if either applies.

Inability to pay refers to a state where the debtor cannot generally and continuously repay debts that are due due to lack of payment ability. Insolvency means a state where all debts cannot be fully repaid with the debtor’s assets.

The process of bankruptcy procedures is as follows. First, when a bankruptcy application is submitted to the court, the court examines whether bankruptcy causes exist. When bankruptcy is declared, a bankruptcy trustee is appointed, and debt reporting and debt investigation procedures proceed.

The bankruptcy trustee liquidates assets belonging to the bankruptcy estate and distributes them to creditors. When distribution is completed, bankruptcy procedures end and the corporation is dissolved.

5. Differences Between Corporate Rehabilitation and Bankruptcy

Corporate rehabilitation and bankruptcy are legal procedures for companies facing business difficulties, but they have fundamental differences in purpose and method.

In terms of procedure purpose, corporate rehabilitation aims for corporate survival and recovery, while bankruptcy aims for corporate liquidation and termination. In corporate rehabilitation procedures, companies continue operating while implementing rehabilitation plans, but in bankruptcy procedures, operations cease and assets are liquidated.

There are also differences in terms of management rights. In corporate rehabilitation procedures, debtors can continue to maintain management rights or continue management under administrator supervision. In contrast, in bankruptcy procedures, bankruptcy trustees have management rights over all assets.

In terms of creditor rights, in corporate rehabilitation procedures, debts are adjusted and repaid according to rehabilitation plans. In bankruptcy procedures, creditors receive distributions according to legal distribution priority with liquidation proceeds from the bankruptcy estate.

6. Specifics of Corporate Rehabilitation and Bankruptcy in Incheon, South Korea

Incheon Songdo International City in South Korea is developing as a center for high-tech industries and international business, giving companies in this region unique characteristics. Many companies are related to international business, increasing the possibility of disputes related to foreign currency debt or international contracts.

For corporate rehabilitation and bankruptcy cases proceeding under Incheon District Court jurisdiction in South Korea, approaches considering regional characteristics are necessary. Understanding the characteristics of specialized industries in the Incheon region such as biotechnology, IT, logistics, and manufacturing, and establishing rehabilitation plans reflecting these characteristics is important.

Additionally, due to regional characteristics near Incheon Port and Incheon International Airport, there are many logistics, transportation, and trade-related companies. In rehabilitation and bankruptcy procedures for such companies, evaluation and handling of special assets (transportation means, storage facilities, etc.) can become important issues.

7. Rehabilitation Plan Preparation and Approval Process

The most crucial stage in corporate rehabilitation procedures is the preparation and approval of rehabilitation plans. Rehabilitation plans contain specific measures for debtor business reorganization and creditor rights adjustment.

Rehabilitation plan contents must include matters regarding debtor business organization and operation, matters regarding creditor rights changes, and funding plans necessary for rehabilitation plan implementation.

Approval procedures are conducted through creditor voting at stakeholder meetings. For rehabilitation plans to be approved, the following requirements must be met for each group. In the rehabilitation creditor group, consent is needed from those holding voting rights equivalent to two-thirds or more of the total voting rights belonging to that group, and in the rehabilitation secured creditor group, consent is needed from those holding voting rights equivalent to three-quarters or more of the total voting rights of rehabilitation secured creditors. When shareholders or equity holders have voting rights, consent is also needed from those holding voting rights equivalent to one-half or more of the total voting rights of shareholders and equity holders exercising voting rights.

The court decides whether to approve rehabilitation plans approved at creditor meetings. When rehabilitation plans receive court approval, debtors must repay debts according to the rehabilitation plan and normalize business operations.

8. Role of Bankruptcy Trustee and Creditor Protection

In bankruptcy procedures, bankruptcy trustees play crucial roles in managing and liquidating bankruptcy estates and distributing them to creditors. Bankruptcy trustees are appointed by courts and are typically professionals such as attorneys or accountants.

Main duties of bankruptcy trustees include management and liquidation of assets belonging to bankruptcy estates, convening creditor meetings, preparing distribution tables and executing distributions. They may also investigate bankrupt party actions and exercise avoidance rights or file damage compensation claims.

From a creditor protection perspective, bankruptcy trustees must strive to maximize the value of bankruptcy estates to increase creditor distribution amounts. For this purpose, they can expand bankruptcy estates through proper asset evaluation, efficient liquidation, and exercise of avoidance rights.

Creditors can preserve their rights through debt reporting and participate in creditor meetings to be involved in bankruptcy procedure progress. Particularly, creditors with security rights can exercise separate rights to receive preferential repayment.

9. Attorney’s Role in Corporate Rehabilitation and Bankruptcy Procedures

Corporate rehabilitation and bankruptcy procedures require very complex and specialized legal knowledge, making professional attorney assistance essential. Attorneys provide legal consultation throughout the entire process from procedure selection to final completion.

At the procedure selection stage, attorneys comprehensively analyze corporate financial status, rehabilitation potential, and stakeholder interests to propose optimal procedures between corporate rehabilitation and bankruptcy. Rather than judging simply by debt scale, careful review of business sustainability and rehabilitation prospects is necessary.

At the application preparation and submission stage, all documents required by courts must be prepared accurately and completely. Particularly, property lists, creditor lists, and rehabilitation plan drafts have decisive impacts on subsequent procedure progress, requiring professional preparation.

During procedure progress, attorneys handle negotiations and communications with courts, administrators, and creditors. In rehabilitation procedures, creditor persuasion work for rehabilitation plan preparation and approval is important, and in bankruptcy procedures, smooth procedure progress through cooperation with bankruptcy trustees is necessary.

10. Key Summary

Corporate rehabilitation and bankruptcy are legal solutions available to companies facing business difficulties, each having different purposes and characteristics. Corporate rehabilitation aims for corporate survival and recovery, while bankruptcy aims for creditor protection through corporate liquidation.

Which procedure to choose should be determined by comprehensively considering corporate rehabilitation potential, financial status, and business prospects. If rehabilitation potential exists, recovery can be pursued while continuing business through corporate rehabilitation procedures, and if rehabilitation is difficult, arrangement through bankruptcy procedures is preferable.

Companies in the Incheon Songdo region of South Korea have characteristics of international business and high-tech industries, requiring specialized approaches considering these factors. Particularly, factors such as foreign currency debt, international contracts, and special assets can affect procedure progress, making sufficient review of these important.

Corporate rehabilitation and bankruptcy procedures are not simple legal procedures but important decisions involving corporate futures and stakeholder interests. Therefore, receiving professional legal consultation to select optimal solutions and proceed with procedures is necessary.

K&P Law Firm provides professional and practical legal services in corporate rehabilitation and bankruptcy fields based on 20 years of accumulated corporate legal expertise and practical experience. We will contribute to the normalization of companies facing business difficulties by utilizing know-how accumulated through various corporate legal experiences including corporate consultation, corporate disputes, and corporate criminal cases.