Corporate bankruptcy/insolvency procedure in Korea is similar, in many respects, to the U.S. Chapter 7 & Chapter 11 bankruptcy procedures with some significant differences. Korean corporate insolvency structure is legislated via the Korean Debtor Rehabilitation and Bankruptcy Law (“KDBRB”). The KDBRB replaced a convoluted and often conflicting myriad of laws in the form of the Corporate Rehabilitation, Composition, and Bankruptcy Act. On April 1, 2006 this new law became effective. Numerous revisions were implemented over the last few years. See: Closing a Company in Korea for an article on the process of winding up a company in Korea.
Bankruptcy Basics in Korea (Chapter 3 of Korean Debtor Rehabilitation and Bankruptcy Law)
Bankruptcy, in Korea, is a court-managed liquidation procedure. The procedure is governed by Chapter 3 of the KDBRB. The basic salient aspects of bankruptcy in Korea are:
- The Korean bankruptcy procedure commences after a filing by either a debtor, creditor, or group of creditors and a determination by the Korean court that a company is “bankrupt.”
- The holding of the court in Korea that a Korean company is “bankrupt” suspends any execution actions based on unsecured claims of creditors.
- The Korean court shall appoint a trustee and the trustee shall have the authority, under the law, to dispose of the assets of the Korean company to the creditors. An “audit” may be performed via the court/audit commissioners.
- Claims are paid based on the proportionate share of the total debt and relevant statutory priorities.
- Secured creditors should act fast. Secured creditors are the top priority and can execute claims prior to liquidation.
Rehabilitation Basics in Korea (Chapter 3 of Korean Debtor Rehabilitation and Bankruptcy Law)
Rehabilitation actions in Korea are governed by Chapter 2 of the KDBRB. The rehabilitation procedure, in Korea, is a court-managed procedure that allows a company in Korea to continue operations and reduce its debt burden.
The major features of the rehabilitation procedure in Korea are:
- A rehabilitation procedure, inter alia, may be filed by a creditor holding claims equal to or greater than 10 percent of the paid-in capital or a shareholder holding 10 percent of the shares of the Korean company.
- The court in Korea may grant, at or near the time of filing the matter to the court, a “preservation stay,” thus, allowing the company to operate without the ability of present creditors to execute attachment or judgments.
- After the Korean court rules that a rehabilitation action is accepted by the court, the “preservation stay” is finalized until the completion of the matter.
- The Korean court will appoint a receiver to act as the representative for the proceedings. The court, normally, appoints the representative director as this representative. However, in cases where the representative director is deemed to have committed misconduct or malfeasance with regard to his duties to the company, another party may be appointed.
- The duties of the receiver include the compiling of a list of claims. The claim list is, typically, accepted by the court unless a creditor possesses an argument that a claim is not present or should not be present on the creditor list.
For more information on bankruptcy and rehabilitation in Korea please take a look at other articles on the Korean Law Blog including:
- Ssangyong’s Korean Bankruptcy/Rehabilitation in Korea
- Debt Collection in Korea: Protect Yourself
- Debt Collection in Korea: Foreign Creditor vs. Korean Company
- Number of Debtors in Korea on the Rise
- Garnishing Wages in Korea
- Debt Collection Agencies in Korea
Sean Hayes is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.
If you would like a consultation with Sean Hayes, please schedule a call at: Schedule a Call with Attorney Sean Hayes.
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