Corporate Rehabilitation Procedure

Which step are you at?

Select your current step and the content for that step will appear below.

1. 1Application for commencement of rehabilitation proceedings
2. 2Order for advance payment and examination of the representative
3. 3Preservative measures, stay orders and comprehensive prohibition orders
4. 4Decision to commence rehabilitation proceedings and appointment of administrator
5. 5Submission of list of creditors, filing and examination of claims
6. 6Examiner's investigation and administrator's report
7. 7Submission of the rehabilitation plan
8. 8Hearing and vote at the meeting of interested parties
9. 9Confirmation decision, performance of the plan and termination

• Basic step
• Additional action / option
• Rejection / objection
• End of procedure

Time required

Commencement is decided within 1 month of the application date; the plan must be approved within 1 year of commencement (extendable by up to 6 months if unavoidable)

Cost

An advance deposit (procedural costs) set by the court considering the size of the case, etc., and attorney and accounting fees are required

Procedure guide

Read from start to finish in order. Red text marks deadlines set by law.

1. 1

   A company applies for rehabilitation when it cannot pay debts that are due without significantly hindering the continuation of its business, or when there is a risk that a ground for bankruptcy will arise (Debtor Rehabilitation and Bankruptcy Act §34(1)). A small business-income earner whose rehabilitation claims and rehabilitation security rights total KRW 5 billion or less can apply for simplified rehabilitation (§293-2, §293-4(1), Enforcement Decree §15-3). After a preservative measure, etc. is issued, the application cannot be withdrawn without court permission (§48), so decide carefully whether to apply.

2. 2

   The applicant must pay in advance the rehabilitation procedure costs set by the court considering the size of the case, etc. (§39), and if not paid, the application for commencement is dismissed (§42 subparagraph 1). The court orders advance payment of costs and examines the representative (Seoul Bankruptcy Court guidance). To prepare for the examination of the representative, prepare materials explaining the company's financial situation and prospects for rehabilitation.

3. 3

   The court can issue a preservative measure preventing disposal of assets (§43), a stay order on other proceedings (§44), and a comprehensive prohibition order blocking compulsory execution by all creditors (§45). If an interested party applies for a preservative measure, the court decides within 7 days of the application date (§43(2)). These are tools to protect the company's assets while it prepares for rehabilitation.

4. 4

   When the company applies, the court decides whether to commence within 1 month of the application date (§49(1)), appoints an administrator (for small and medium enterprises, etc., the representative may be deemed the administrator, §74(3)(4)), and sets the schedule for filing and examining claims and submitting the plan (§50(1)). An immediate appeal can be filed against a dismissal of the application or a commencement decision within 14 days of the public notice date, but it has no effect of staying execution (§53, §13(2)).

5. 5

   The procedure proceeds in the order of submitting the list of creditors (2 weeks to 2 months from the commencement decision date), filing claims (1 week to 1 month from the last day of the list submission period), and examining claims (1 week to 1 month from the last day of the filing period) (§50(1)). A claim that is neither on the list nor filed is extinguished upon confirmation (§251). For a claim to which an objection is raised, apply for a claim determination trial within 1 month from the last day of the examination period (§170(2)).

6. 6

   The examiner examines the liquidation value and going-concern value (§87), and the administrator reports the circumstances that led to rehabilitation and the state of the assets (§92). If it is clear that the liquidation value is greater, the procedure may be discontinued (§286(2)), so the results of this examination set the direction of the rehabilitation.

7. 7

   The administrator submits the rehabilitation plan within a submission period of 4 months or less from the last day of the examination period (§50(1)4, §220). An extension is up to 2 months and cannot exceed 1 month for a small or medium enterprise (§50(3)). If the plan is not submitted within the period, the procedure is discontinued (§286(1)), so prepare it from the examination stage.

   Current step
8. 8

   At the meeting of interested parties, votes are taken by class; the approval requirements are 2/3 or more for the class of rehabilitation creditors, 3/4 or more for the class of rehabilitation secured creditors (4/5 or more for a liquidation-type plan), and 1/2 or more of the voting rights exercised at the meeting for the class of shareholders (§237). Approval must be obtained within 2 months from the 1st meeting date and within 1 year of commencement (§239). Even if a class does not consent, the plan can be confirmed by setting rights-protection provisions (§244).

9. 9

   The court decides whether to confirm on the date the plan is approved or on a date immediately announced (§242(1)). Once confirmed, debts are repaid according to the plan, and once repayment begins, the rehabilitation procedure may be terminated (§283(1)). If it becomes clear after confirmation that the plan cannot be carried out, the procedure is discontinued (§288), and once the discontinuance is final, bankruptcy is declared by the court on its own authority (§6(1)).

Frequently asked questions

Practical questions that come up right away in this procedure.

QHow are rehabilitation and bankruptcy different?

Rehabilitation is a procedure that adjusts debts so the company can keep running its business. Bankruptcy is a procedure that liquidates the company's assets and distributes them to creditors.So in rehabilitation, what matters is whether the going-concern value (the value if the business continues) is greater than the liquidation value (the value if it is wound up). If it is clear that the value of winding up is greater, the rehabilitation procedure may be discontinued.

QWhat is the difference between ordinary rehabilitation and simplified rehabilitation?

Simplified rehabilitation is used by small business-income earners whose rehabilitation claims (claims arising before rehabilitation) and rehabilitation security rights total KRW 5 billion or less. A simplified examiner can be appointed to simplify the examination. The requirements for approval by the class of rehabilitation creditors are also relaxed.In addition to consent of 2/3 or more, the plan is also deemed approved with "consent of more than 1/2 and consent of a majority of those with voting rights." If the requirements for simplified rehabilitation are not met, the case may proceed as ordinary rehabilitation according to the intention stated in the application.

QIf we apply for rehabilitation, does compulsory execution stop right away?

Filing alone does not stop it automatically. Compulsory execution, etc. can be blocked only when the court issues a preservative measure (an order preventing disposal of assets), a stay order on other proceedings, or a comprehensive prohibition order.So if seizure is imminent, apply for these orders together with the application. If an interested party applies for a preservative measure, the court decides within 7 days.

QA business partner has entered rehabilitation. What should we do as a creditor?

You must file your claim within the filing period set by the court. A claim that is neither on the list nor filed is extinguished (the right is lost) once the rehabilitation plan is confirmed. If an objection is raised to a filed claim, apply for a claim determination trial within 1 month from the last day of the examination period.

QIf creditors oppose the plan, does the rehabilitation end?

Not necessarily. Even if a class does not obtain the statutory majority's consent, the court can confirm the plan. It does so by setting provisions that protect that class's rights (cram-down confirmation).However, as a rule, the procedure is discontinued if the plan is rejected or not approved within the approval period. So it is important to consult in advance with creditors holding large claims.

QWhat happens if rehabilitation fails?

After confirmation, the rehabilitation procedure may be discontinued and that becomes final. In that case, if there is a ground for bankruptcy, the court must declare bankruptcy on its own authority.The court may also declare bankruptcy when a dismissal of the application for commencement (not accepting the request), discontinuance before confirmation, or a decision not to confirm becomes final. So before applying for rehabilitation, also consider the possibility that it may lead to bankruptcy.