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
On 27 May 2016, South Korea's STX Offshore & Shipbuilding Co. ("STX OS"), once the country's fourth-largest shipbuilding firm by revenue, filed for court-supervised rehabilitation, in the Seoul Central District Court.
I. Hanjin Shipping applies for rehabilitation proceedings
As you may be aware, one of South Korea's largest shipowners, Hanjin Shipping Co Ltd (“Hanjin”), has applied for court rehabilitation in Korea. On 1 September 2016 the Seoul Central District Court (Bankruptcy Division 6) issued a decision accepting that application and commencing rehabilitation proceedings.
Based on our experience in dealing with recent rehabilitations involving the Korean shipping industry and working closely with Korean lawyers, we set out below a few guidance points.
What is a Korean Court Rehabilitation?
South Korea’s Hanjin Shipping Co Ltd. filed for court receivership on Wednesday, August 31st in South Korea after losing the support of its banks, setting the stage for its assets to be frozen as West Coast ports deny access to its vessels. This recent development will have an immediate impact on a number of Buchalter’s clients, including manufacturers, retailers and asset based lenders.
- Implications of Supreme Court 2012Do1283 (rendered June 14, 2012)
Regarding the acquisition of a company under reorganization according to the Debtor Rehabilitation and Bankruptcy Act, the Supreme Court ruled on June 14, 2012 that the general principles of a leverage buy-out ("LBO") should apply.
On October 11, 2012, the Seoul Central District Court (“Court”) commenced reorganization proceedings against Woongjin Holdings, a holding company of Woongjin Group, under the Debtor Rehabilitation and Bankruptcy Act (“Bankruptcy Act”). As a result, various issues under the Bankruptcy Act related to the reorganization proceedings of Woongjin Holdings surfaced.
On October 11, 2012, the Seoul Central District Court ("Court") commenced reorganization proceedings against Kukdong Engineering & Construction Co., Ltd. ("Kukdong") under the Debtor Rehabilitation and Bankruptcy Act ("Bankruptcy Act").