The recently enacted Korean Corporate Restructuring Promotion Act (hereinafter as “CRPA”) focuses on facilitating “…constant corporate restructuring and promotes the stabilization of financial markets and the development of the national economy, by providing for matters necessary to promptly and efficiently implement corporate improvement of enterprises with signs of insolvency.” (Art 1 (Purpose) CRPA). The CRPA is intended to facilitate out-of-Korean-court restructuring procedures. Often, debtors prefer out-of-court proceedings over in-court proceeding, because the belief that out-of-court proceedings shall lead to more flexibility and less costs.
In October 2018 a revised version of CRPA 2016 entered into force. The revised CRPA, provides eased legal conditions for creditor banks. The key amendments to Korean CRPA 2018 are noted below.
Liability-Exemption for Creditors Acts and Omissions
Creditor financial institutions, their officers and employees have liability while restructuring a debtor company. But they shall not be responsible for the results, if they properly fulfilled their obligations conform to the CRPA and in respect of all relevant laws – acted via the best knowldge at the time (similar to a best judgment rule). Liability may, however, still pass to these individuals in case of intentional malfeasance, gross negligence, corruption, personal interest, infringements, and insufficient collection and review of necessary information.
Eased Regulation for Publishing Results of Normalization Plan
In a collaborative management of Micro, Small and Medium Enterprises in Korea, the debtor company provides a business normalization plan each quarter. This plan is checked by the main creditor bank regarding performance. Furthermore, the results of their review is published – at least annually. However, the publication of the results may be omitted, if the publication of the performance review would cause a negative influence on the performance of the debtor company, such as the revealation of business secrets.
Flexibility regarding Overall Assessment of Collaborative Management
The obligation of the main creditor bank to carry out an overall assessment of the collaborative management each three years was eased and provides exemptions for Micro, Small and Medium Enterprises in Korea. If these exemptions apply, the main creditor bank can choose an alternative timeline for the publication or can skip publishing the overall assessment.
We shall be updating the reader on additional information on Korean Rehabilitation/Insolvency Law jurisprudence in the near future.
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