Corporate Bankruptcy Consultation | A Case in Which Company A, Operating at a Loss and Having Requested Corporate Rehabilitation, Obtained Approval of the Rehabilitation Proceedings

The corporate rehabilitation procedure is a system that, for a debtor facing financial ruin, seeks the efficient recovery of the debtor or its business by coordinating the legal relationships among various interested parties, such as creditors, shareholders, and equity holders.

Its main purpose is to rebuild the debtor's business and repay debts while continuing operations, and it is distinguished from bankruptcy proceedings, whose main purpose is to dispose of and convert the debtor's property into cash and distribute it fairly to creditors.

A corporate rehabilitation procedure may be applied for by the debtor, a creditor holding claims equivalent to one-tenth or more of the capital, or a shareholder or equity holder holding shares or equity equivalent to one-tenth or more of the capital.

When a corporate rehabilitation procedure commences, the following legal effects arise.

First, the authority to manage and dispose of the debtor's property and the right to conduct business are transferred to a custodian appointed by the court.

If no separate custodian is appointed, the existing representative assumes the status of custodian, and all of their acts are carried out under the supervision of the court.

In particular, acts that require the court's permission by law take effect only if such permission is obtained.

In addition, once the rehabilitation procedure commences, the applicant cannot withdraw the procedure on their own.

The procedure continues under the jurisdiction of the court, and the court may discontinue the rehabilitation procedure only when certain grounds exist, such as where the possibility of rehabilitation is markedly low, or where liquidation is clearly more advantageous in terms of corporate value than continuing the business.

In this way, the commencement of a rehabilitation procedure has a significant effect on the rights and obligations of the debtor and interested parties, and the subsequent procedure is operated strictly under the supervision of the court.

The corporate bankruptcy and rehabilitation specialist attorney argued that the client company had taken out a loan to purchase land for the construction of a new research center, but that a trade incident occurred with a foreign business partner, resulting in damages of approximately 1.5 billion won.

As a result, unpaid receivables also accumulated for the client company, causing disruptions in cash flow and leading the company into severe financial difficulty.

In the corporate bankruptcy consultation, it was emphasized that the client company had fallen into financial difficulty severe enough to warrant filing for corporate rehabilitation.

The corporate rehabilitation and bankruptcy attorney argued, based on the client company's statement of financial position, that the debt could not be repaid through normal operating profit alone.

The corporate rehabilitation and bankruptcy attorney closely analyzed the client company's financial statements and emphasized that, compared with the size of the debtor's assets that could be converted to cash within a short period, the size of the debt whose repayment date had already arrived or would soon arrive was large, stressing that approval of rehabilitation was necessary.

As a result of analyzing Company A's management situation from multiple angles, Daeryun determined that, despite a temporary liquidity crisis, there was sufficient possibility of rehabilitation based on a stable revenue structure and asset value.

In fact, Company A was continuously generating a certain level of sales, and it was confirmed that, if the existing debt were adjusted or the interest burden eased, debt repayment would be possible by reinvesting operating profits.

Accordingly, Daeryun proved the possibility of improving Company A's financial structure on a figures-centered basis and assisted in preparing a rehabilitation plan at a level that creditors and the court could accept.