The three once-major Korean shipping and shipbuilding companies - Hanjin Shipping Co., Ltd. (Hanjin Shipping), STX Offshore & Shipbuilding Co., Ltd. (STX O&S), and Daewoo Shipbuilding & Marine Engineering Co., Ltd. (DSME) - today stand at crossroads of destiny between rehabilitation and bankruptcy. Given the global nature of the operations by the companies, their fate will have a substantial impact on the economy globally.

It has been just over two months since one of South Korea's largest shipowners and operators, Hanjin Shipping Co Ltd (“Hanjin”), applied for court rehabilitation. On 1 September 2016, the Bankruptcy Division 6 of the Seoul Central District Court (the “court”) issued a decision accepting that application and commencing rehabilitation proceedings.

Seoul Central District Court, or the Korean bankruptcy court handling rehabilitation proceedings of Hanjin Shipping Co., Ltd. (Hanjin Shipping) recently took several noteworthy measures. Pursuant to the Court’s decision, the fate of Hanjin Shipping will not be unraveled until February next year. The upcoming dates and deadlines for extended time pursuant to the aforementioned decision are as follows:

- Extended deadline for the claim inspection period: December 5, 2016

The once great shipping giant, Hanjin Shipping Co., Ltd. is now facing liquidation. The appraised liquidation value is 19 trillion won.

This is the second instalment in a series on the US cross-border insolvency statute, Chapter 15 of the Bankruptcy Code, which took effect 11 years ago (for further details please see "Chapter 15 at 11: Bankruptcy Code's cross-border insolvency law approaches 11th anniversary").

In 2009, a certain savings bank (“S Savings Bank”) issued subordinated bonds (the “Subordinated Bonds”).  Subsequently, the Financial Services Commission designated it as an insolvent financial institution and issued a management reform order, which included the suspension of its business.  Eventually, bankruptcy proceedings were commenced against S Savings Bank in around 2011, and the representative director of S Savings Bank was indicted for financial statement fraud and eventually found guilty.

Since the inauguration of electronic litigation or e-litigation (hereinafter “e-litigation”) services for patent cases in April 2010, the  Korean Supreme Court has gradually expanded the scope of availability of e-litigation services to civil, family law and  administrative cases, and provisional attachment and injunction cases. With the completion of the e-litigation system for  rehabilitation and bankruptcy cases, those proceedings and their ancillary proceedings can be administered electronically from  April 28, 2014, as described below.

The Debtor Rehabilitation and Bankruptcy Act (“DRBA”) amended on October 15, 2014 for the purpose of prohibiting business owners responsible for the bankruptcy of a company from reacquiring such company under reorganization through individual(s) who have aligned economic interests after the company receives a large amount of debt relief though rehabilitation proceedings, will be enacted on January 16, 2015.

“Workout” in Korea is generally accepted as an out-of-court corporate restructuring process aimed at speedy business normalization of financially distressed companies by cooperation  between  the  debtor  company  and  its  creditors.

On 19 May 2016, the National Assembly passed the bill to amend the Debtor Rehabilitation and Bankruptcy Act (“DRBA”).  Key amendments include (1) improvements to the early proposed rehabilitation plan submission policy; (2) broadened scope of creditor participation in the proceedings; and (3) stronger protection of creditors with commercial claims.  The revised DRBA is expected to enter into force 3 months after promulgation. 

I. Improvements to the early rehabilitation plan proposal submission policy