Corporate Rehabilitation and Bankruptcy 02Corporate Bankruptcy
Corporate Bankruptcy Procedure
This is the procedure when a company can no longer pay its debts and it is also hard to keep the business going. Under the court's supervision, the company's assets are liquidated, distributed fairly to creditors, and the procedure is brought to a close.It explains what happens from the bankruptcy petition to the declaration of bankruptcy, filing and examination of claims, distribution and termination. It also looks at what the company and creditors must do at each step.
Which step are you at?
Select your current step and the content for that step will appear below.
- 1Bankruptcy petition
- 2Preservative measure
- 3Order for advance payment and examination of the representative
- 4Declaration of bankruptcy and appointment of bankruptcy trustee
- 5Filing of bankruptcy claims
- 6Creditors' meeting, claim examination and liquidation of assets
- 7Payment of estate claims and distribution
- 8Creditors' meeting for accounting report and termination of bankruptcy
Process flowchart
Click a box to see its explanation below.
- Basic step
- Additional action / option
- Rejection / objection
- End of procedure
Bankruptcy petition
Basis: Debtor Rehabilitation and Bankruptcy Act §294, §295, §296, §305, §306 · Debtor Rehabilitation and Bankruptcy Act §391, §650-§652
A creditor or debtor may file a bankruptcy petition, and if a creditor files, it must make a prima facie showing of the existence of its claim and the ground for bankruptcy (Debtor Rehabilitation and Bankruptcy Act §294). For a corporation, directors, partners with unlimited liability and liquidators may also file (§295), and unless all of them file, they must make a prima facie showing of the ground for bankruptcy (§296).The ground for bankruptcy is insolvency (suspension of payments is presumed to be insolvency, §305), and for a corporation an excess of liabilities is also a ground for bankruptcy (except during the existence of a general partnership or limited partnership company, §306).
Next: Preservative measureExplanation
If the company is insolvent (unable to pay its debts) or has an excess of liabilities (more debts than assets), it can file for bankruptcy with the court. A person such as a director or liquidator of the company can file, or a creditor can file.Bankruptcy is a procedure for winding up the business and distributing the remaining assets fairly to creditors. So if there is a possibility of continuing the business, compare it with rehabilitation first.
- Time required
- About 1-2 months from the petition to the declaration of bankruptcy (Seoul Bankruptcy Court guidance, not a statutory deadline); the period for liquidation and distribution afterward varies with the size of the assets, so check with the bankruptcy trustee
- Cost
- An advance deposit the court deems appropriate (if an order for advance payment is issued), stamp fee (KRW 1,000 for a debtor's petition), service fee (basic KRW 204,000 + number of creditors × KRW 5,100 × 3, Seoul Bankruptcy Court guidance) and attorney fees are required
Procedure guide
Read from start to finish in order. Red text marks deadlines set by law.
- 1
If the company is insolvent (§305) or has an excess of liabilities (§306), its directors, liquidators, etc. or creditors can file for bankruptcy (Debtor Rehabilitation and Bankruptcy Act §294-§296). If an application for commencement of rehabilitation is filed, the court can order a stay of the bankruptcy proceedings (§44(1)1), and once rehabilitation proceedings commence, the bankruptcy proceedings are stayed (§58(2)1), so if there is room to save the business, compare with rehabilitation first.
- 2
To keep assets from leaving the company before the declaration of bankruptcy, the court can issue a preservative measure on application or on its own authority (§323). An immediate appeal can be filed against a preservative measure, but it has no effect of staying execution.
- 3
When filing for bankruptcy, you must pay in advance the costs the court deems appropriate (§303), and if not paid, the petition may be dismissed (§309(1)1). According to Seoul Bankruptcy Court guidance, if you receive an order for advance payment and do not pay, the bankruptcy petition is dismissed, and when the debtor files, it takes about 1-2 months from the petition to the declaration.
- 4
When declaring bankruptcy, the court appoints a bankruptcy trustee and sets the claim filing period (2 weeks to 3 months from the declaration date), the 1st creditors' meeting (within 4 months of the declaration date), and the claim examination date (§312). If the assets cannot even cover the procedural costs, the bankruptcy is discontinued at the same time as the declaration (simultaneous discontinuance, §317(1)). An immediate appeal can be filed against a decision on the bankruptcy petition within 14 days of the public notice date (§316, §13(2)).
- 5
Creditors file their bankruptcy claims within the filing period set by the court (§447). Only filed claims are subject to examination and distribution, so the company should also submit an accurate list of creditors.
- 6
At the 1st creditors' meeting and the claim examination date, filed claims are examined (§450), and the bankruptcy trustee liquidates the assets. For a claim to which an objection is raised, apply for a claim determination trial within 1 month of the examination date (§462(5)), and file an objection suit against that decision within 1 month of service (§463(1)). If you cannot prove this within 14 days of the distribution notice date, you are excluded from the distribution (§512(1)).
Current step - 7
The bankruptcy trustee pays estate claims (§473), such as wages, severance pay, taxes and procedural costs, before bankruptcy claims (§476), and after the claim examination date ends, distributes without delay whenever there is money to distribute (§505). If costs are insufficient, the bankruptcy is discontinued after hearing the creditors' meeting (subsequent discontinuance, §545), and discontinuance by consent is also possible if, for example, all creditors consent (§538).
- 8
The bankruptcy trustee submits an accounting report by 3 days before the creditors' meeting date (§365(3)), and when the accounting report meeting ends, the court decides to terminate the bankruptcy and gives public notice (§529, §530). If new assets come to light after termination, an additional distribution is made with court permission (§531).
Deadlines to keep from now
- 2 weeks to 3 months from the declaration dateStep 4 Bankruptcy claim filing period
- Within 4 months of the declaration dateStep 4 1st creditors' meeting
- 14 days from the public notice dateStep 4 Immediate appeal against a bankruptcy decision
- 1 month from the examination dateStep 6 Application for bankruptcy claim determination trial
- By 3 days before the creditors' meeting dateStep 8 Submission of accounting report
Preparation and checks
- Organize recent profit and loss records, a list of assets and a list of creditors. Accurately listing assets and debts lets the petition proceed smoothly.
- Compare with rehabilitation to see whether there is still a possibility of continuing the business. Once rehabilitation commences, the bankruptcy proceedings are stayed.
- Arrange the advance payment in advance and check the schedule for the examination of the representative. If you receive an order for advance payment and do not pay, the petition may be dismissed.
- Prepare to hand over accounting books, contracts and asset records to the bankruptcy trustee. After the declaration, the trustee takes charge of managing and disposing of the assets.
- If you are a creditor, file the claim amount and supporting materials within the filing period. You must file to receive a distribution.
When you need a lawyer
It is advisable to get an attorney's help in cases like these: when you must judge whether rehabilitation or bankruptcy is right, or when creditors keep pursuing compulsory execution and a preservative measure is urgent.
The same applies when sorting out estate claims (claims paid first from the bankruptcy estate) and bankruptcy claims is complex. For bankruptcy, assets and debts must be listed accurately in the petition.
Also, if there is still a possibility of rehabilitation, rehabilitation should be considered first. So the judgment before filing is important.
Current position (6/8)
Step 6 · Creditors' meeting, claim examination and liquidation of assets
What to do now
At the 1st creditors' meeting, the bankruptcy trustee reports on the company's situation, and at the claim examination date the filed claims are checked.
Meanwhile, the bankruptcy trustee sells the company's assets and converts them into money (liquidation). A claim to which an objection is raised must be determined separately through a trial, so if you are a creditor, be sure to check the result of the examination date.
What comes next
Step 7 · Payment of estate claims and distribution
The bankruptcy trustee first pays estate claims such as employees' wages and severance pay, taxes and procedural costs, and distributes the remaining money to bankruptcy creditors.
After the claim examination date ends, it must distribute without delay whenever there is enough money to distribute. Distribution is made with court permission, so creditors should check the distribution table and look for any parts to object to.
Deadlines to keep from now
- 1 month from the examination dateStep 6 Application for bankruptcy claim determination trial
Basis: Debtor Rehabilitation and Bankruptcy Act §312, §450, Seoul Bankruptcy Court corporate bankruptcy guidance
- By 3 days before the creditors' meeting dateStep 8 Submission of accounting report
Basis: Debtor Rehabilitation and Bankruptcy Act §365, §529, §530
When to involve a lawyer
It is advisable to get an attorney's help in cases like these: when you must judge whether rehabilitation or bankruptcy is right, or when creditors keep pursuing compulsory execution and a preservative measure is urgent.
The same applies when sorting out estate claims (claims paid first from the bankruptcy estate) and bankruptcy claims is complex. For bankruptcy, assets and debts must be listed accurately in the petition.
Also, if there is still a possibility of rehabilitation, rehabilitation should be considered first. So the judgment before filing is important.
Frequently asked questions
Practical questions that come up right away in this procedure.
- QWho can file for corporate bankruptcy?
- The company itself (directors, partners with unlimited liability, liquidators, etc.) and creditors can file. The ground for bankruptcy is insolvency, meaning the inability to pay debts. For a corporation, having more debts than assets (excess of liabilities) is also a ground.
- QHow long does it take until bankruptcy is declared?
- According to Seoul Bankruptcy Court guidance, when the debtor files, it takes about 1-2 months from the petition to the decision declaring bankruptcy. This is not a deadline set by the Debtor Rehabilitation and Bankruptcy Act.If you receive an order for advance payment and do not pay, the petition may be dismissed. So prepare the costs first.
- QWhat happens if the company has almost no assets left?
- If the assets are not even enough to cover the procedural costs, the court must decide to discontinue the bankruptcy at the same time as declaring it (simultaneous discontinuance). If a shortage of costs becomes apparent after the declaration, the court must discontinue it after hearing the creditors' meeting (subsequent discontinuance). Both decisions can be challenged by an immediate appeal (a challenge within a short deadline).
- QA business partner has gone bankrupt. What should we do as a creditor?
- File your bankruptcy claim within the filing period set by the court. The filing period is set at 2 weeks to 3 months from the date of the bankruptcy declaration.If an objection is raised to a filed claim, apply for a claim determination trial within 1 month of the examination date. Then, within 14 days of the distribution notice date, you must prove this to the bankruptcy trustee (the person who manages the bankrupt's assets) so that you are not excluded from the distribution.Then check the distribution table to see the order and amounts of distribution.
- QCan we switch to rehabilitation during the bankruptcy proceedings?
- If an application for commencement of rehabilitation is filed, the court can order a stay of the bankruptcy proceedings. Once rehabilitation proceedings commence, the bankruptcy proceedings are stayed.Seoul Bankruptcy Court guidance also explains that bankruptcy proceedings are suspended once rehabilitation proceedings commence. So if the business is worth continuing, you can consider rehabilitation even during bankruptcy.
When you need a lawyer
- An immediate appeal against a bankruptcy decision must be filed within 14 days of the date of public notice (§13(2)), and an immediate appeal has no effect of staying execution (§316(3)). Manage the deadline based on the public notice date.
- If you receive an order for advance payment and do not pay, the bankruptcy petition is dismissed (Seoul Bankruptcy Court guidance, §309(1)1). Arrange the costs before filing.
- This guide does not cover the personal debts of the corporation's representative (such as joint and several guarantee debts). The representative is a separate debtor from the corporation, so if there are joint and several guarantee debts, review them separately for the representative personally.
Related laws
- Debtor Rehabilitation and Bankruptcy Act Article 13 (immediate appeal), Article 44 and Article 58 (stay order and stay upon commencement of rehabilitation), Articles 294 to 296 (bankruptcy petition), Article 303 (advance payment of costs), Article 305 and Article 306 (grounds for bankruptcy), Article 309 (grounds for dismissal), Article 312 and Article 313 (declaration of bankruptcy, trustee, dates), Article 316 and Article 317 (immediate appeal, simultaneous discontinuance), Article 323 (preservative measures), Article 365 (accounting report), Article 391 (right of avoidance), Article 447 and Article 450 (filing and examination of claims), Article 462 and Article 463 (claim determination trial), Article 473 and Article 476 (estate claims), Articles 505 to 507, Article 512 (distribution and exclusion from distribution), Articles 529 to 531 (termination and additional distribution), Article 538 and Article 545 (discontinuance), Articles 650 to 652 (fraudulent bankruptcy and negligent bankruptcy)
- Seoul Bankruptcy Court, introduction to insolvency procedures – corporate bankruptcy
