Corporate rehabilitation, rehabilitation using legal consultation... Bankruptcy must be implemented in a timely manner

Due to the prolonged COVID-19 pandemic and economic recession, the number of companies filing for corporate bankruptcy has reached an all-time high.

According to the monthly court statistics, the number of corporate bankruptcy applications, which was 931 in 2019, increased to 1,069 in 2020, an increase of more than 10%.

This is a figure that has more than doubled compared to 2013, when corporate bankruptcy applications began to be listed as a separate item in monthly statistical reports. This is because many companies are unable to withstand the prolonged recession and are choosing corporate bankruptcy because they believe it is difficult for them to survive.

However, in cases where it is temporarily difficult to operate a company due to changes in economic conditions, it is necessary to actively utilize corporate rehabilitation procedures.

What are the corporate rehabilitation and corporate rehabilitation systems that can be chosen as a way to save a company instead of corporate bankruptcy, and under what circumstances can one apply?

Corporation and corporate rehabilitation is a system that reduces the debt burden of a company subject to court arbitration and the consent of creditors.

If a company is facing bankruptcy due to a temporary cash flow crunch, it is more advantageous for the company and its creditors to continue operating the business and repay creditors with the income, rather than disposing of current assets and repaying creditors.

In other words, if you apply for corporate rehabilitation and receive a preservative measure, repayment of debts to creditors will be temporarily suspended and you will be able to receive all funds due, allowing you to continue normal business activities. Therefore, it is possible to proceed with the procedure if the survival value if the business continues to exist is higher than the liquidation value in the case of bankruptcy.

Attorney Jeong Chan-woo of Daeryun Law Firm (Lihan) said, “The application process is difficult and complex, and it needs to be approached cautiously as it has a huge impact on stakeholders such as companies, debtors, and employees.” He added, “It must be accompanied by a solid rehabilitation plan, so it is important to prevent losses or going in the wrong direction by preparing measures to deal with expected variables and risks in advance.”

Additionally, you must be careful not to miss the right time to apply.

If the business situation has already deteriorated extremely and there is no possibility of sales generation or recovery, the decision to dismiss or cancel the business cannot be avoided even if the company goes through rehabilitation procedures. Therefore, it is important to apply at the right time before the company's business situation worsens excessively.

However, if the company is in a situation where continuous operation is difficult enough to consider bankruptcy or corporate rehabilitation procedures, it may be difficult to readily receive consultation because the consultation fees or fees of a lawyer may be burdensome.

For that reason, the government and local governments, as well as some law firms, provide counseling to ease the burden on business owners facing corporate bankruptcy or rehabilitation. It is important to find a place where legal counseling is available and seek legal assistance quickly so as not to miss the right time to apply for corporate rehabilitation.

Attorney Jeong Chan-woo also advised, “Rather than proceeding with rehabilitation and bankruptcy procedures through inaccurate information such as the Internet due to the burden of costs, it would be beneficial to actively use legal counseling to come up with a plan.”

Daeryun Law Firm (Lihan) is located in Seoul, Busan, Daegu, Incheon, Gwangju, Daejeon, Ulsan, Suwon, Changwon, Cheongju, Jeonju, Uijeongbu, Chuncheon, Jinju, and Jeju and provides legal consultation on corporate litigation and corporate rehabilitation and bankruptcy.

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