Restructuring of Korean SMEs a Potential Lucrative Business in Korea

Bloomberg has an interesting article on “Zombie” companies in Korea. Many of these companies have decent cash flow, but because of Korean corporate realities many have been less than capable of controlling costs.

The Bloomberg article, in part, notes:

“One of the biggest concerns is so-called “marginal” or “zombie” companies, usually defined in Korea as businesses that haven’t been able to make payments on interest from operating profit for three years. A prolonged period of low interest rates has led to an increase in marginal companies and there is an “urgent” need for restructuring, Bank of Korea Governor Lee Ju Yeol said this month. Financial Services Commission Chairman Yim Jong Yong has warned that unless the problems at these companies are addressed, they will become a burden to the economy. The number of marginal companies jumped to 3,295 last year, from 2,698 in 2009, according to the central bank. They account for 15 percent of businesses with more than 10 billion won ($8.6 million) of assets.”

Zombie Companies in Korea

Foreign companies have been able, during the 1997 Financial Crisis and some are today, purchasing the assets of these Zombie companies in order to obtain the cash flow and other assets of the company, while engaging in aggressive cost-cutting efforts. We know of many successful turnaround stories. Often the turnaround is as, simply, as buying the contracts of inefficient management. Targets abound.

Please retain, in these matters, an experienced attorneys with experience in takeovers and employment law. This post was motivated by a terrible situation we are, presently, working on.

We, recently, saw an issue with an all cash “asset” deal turning bad because of the lack of proactive advice on employment/severance risks. You may be assuming more than you, actually, assume without a complete understanding of Korea’s employment law.

The Bloomberg Article may be found at: Zombie Companies in South Korea