Corporate Rehabilitation and Bankruptcy | A Case of Assisting a Company Facing Bankruptcy to Obtain Approval of Corporate Simplified Rehabilitation

When a company faces a serious financial crisis, two of the principal legal mechanisms available to it are 🔗corporate rehabilitation and 🔗corporate bankruptcy.

Both procedures fall under the insolvency law framework, but their purposes and procedures differ significantly.

▶What is corporate rehabilitation?

Rehabilitation proceedings are a system that helps a company in business difficulty get back on its feet without going bankrupt.

The court adjusts the legal relationships with interested parties such as creditors and shareholders, reducing or rescheduling the debt so that the company may continue its operations.

An important point is that the main purpose of rehabilitation is to continue the business by restructuring the debt.

Once rehabilitation proceedings commence, compulsory execution by individual creditors is suspended, and a custodian appointed by the court or the existing representative continues to operate the company under the court's supervision.

▶What is corporate bankruptcy?

Corporate bankruptcy is a procedure declared by the court when a company effectively can no longer continue its business and cannot repay all of its debts.

Its purpose is to dispose of and liquidate all of the corporation's assets into cash, distribute them fairly among creditors, and wind up the company.

It is chosen when continuing the business is difficult, and a company with no prospect of rehabilitation is wound up through liquidation.

▶Rehabilitation and bankruptcy, how do they differ?

▶Which companies are eligible for corporate rehabilitation?

-Where there are sales but a short-term shortage of funds
-Where there are business partners and assets and a prospect of recovery
-Where the business itself is sound but the debt has temporarily increased
In such cases, rather than bankruptcy, corporate rehabilitation, and in particular simplified corporate rehabilitation, which involves a simpler procedure, may be actively considered.

The attorney specializing in corporate simplified rehabilitation first comprehensively analyzed the corporation's management status, asset and liability structure, and profit-and-loss trends.

The attorney then precisely determined the list of creditors and the amounts of the claims to organize the creditor list, and also examined whether there were any disputes with creditors.

In particular, because a considerable portion of the liabilities consisted of debts such as trade accounts payable to client businesses, the attorney examined in detail the priority of each debt, the existence of security interests, and other matters to prepare the basic materials for drawing up the rehabilitation plan.

The rehabilitation and bankruptcy attorney submitted the application to commence simplified corporate rehabilitation proceedings, thoroughly preparing the company's financial statements and recent cash flow statement, business status, and major contractual relationships.

The most crucial stage is the preparation of the rehabilitation plan.

The Daeryun rehabilitation and bankruptcy attorney made the adjustment of financial-institution debt, which accounts for the largest portion of the rehabilitation procedure, the top priority and prepared a plan that included a partial reduction of the debt principal and an installment repayment plan.

The attorney also attached a conditional agreement to maintain continuous supply contracts with business partners, demonstrating that stable business operations would be possible even after rehabilitation.