CONTENTS
- 1. Hospital Rehabilitation | Hospital Representative Charged With 17 Billion Won Fraud, Four Years' Imprisonment
- - The Legal Risks of Delaying Hospital Rehabilitation
- 2. Hospital Rehabilitation | A Hospital Director Who Turned to Daeryun to Pursue Rehabilitation Proceedings
- - A Rehabilitation Design Reflecting the Distinctive Features of Healthcare
- 3. Hospital Rehabilitation | Differences From General Corporate Rehabilitation
- - Understanding the M&A Structure in Medical Corporation Rehabilitation
- - Rehabilitation Procedure Checklist
- - Daeryun's Assistance and Practical Implications
1. Hospital Rehabilitation | Hospital Representative Charged With 17 Billion Won Fraud, Four Years' Imprisonment
Promptly determining whether to commence hospital rehabilitation proceedings is highly important, because leaving management difficulties unaddressed can expand into criminal liability.
On December 12, 2025, the Gwangju District Court imposed an actual custodial sentence on a hospital representative who had generated debt of approximately 17 billion won through excessive business expansion and a debt-rollover style of fund management.
The court found that the so-called “rollover loan” structure, in which funds were borrowed under high-interest agreements and used to repay existing debt, constituted a typical instance of fraud.
Notably, in this case, the court took into account in its sentencing that the defendant was repaying part of the debt through hospital rehabilitation proceedings.
This shows that rehabilitation proceedings may affect not only the improvement of financial structure but also the mitigation of criminal risk.
When a deterioration in hospital management leads to excessive fund-raising attempts, such as expanded high-interest borrowing, shortages of operating funds, unpaid pension contributions and wages, and REIT or sublease arrangements, the matter can escalate into a criminal issue.
This is why discussion with an attorney about whether to commence hospital rehabilitation proceedings is needed at the early stage when liquidity pressure begins.
The Legal Risks of Delaying Hospital Rehabilitation
In the judgment described above, the court pointed to the excessive expansion and the high-interest borrowing structure.
Where collateral capacity is insufficient, borrowing funds under agreements for substantial interest and using those funds to repay existing debt is highly dangerous from a legal standpoint.
In particular, a hospital may face simultaneous problems such as unpaid national pension contributions, unpaid wages, suspicions of embezzlement of medical funds, and false representations made to attract investment.
Management difficulty is not in itself a crime, but where funds continue to be borrowed despite awareness of an insufficient capacity to repay the debt, this may lead to a finding of fraud.
The moment a hospital postpones rehabilitation and attempts to secure liquidity through excessive means, a civil matter may turn into a criminal one.
2. Hospital Rehabilitation | A Hospital Director Who Turned to Daeryun to Pursue Rehabilitation Proceedings
The client who turned to Daeryun to inquire about hospital rehabilitation proceedings had been operating a hospital that was in its twelfth year since establishment.
The client's hospital was a medical institution that had been operating stably within its region.
The client had sought to strengthen its competitiveness through facility modernization, the introduction of high-cost medical equipment, and the expansion of its specialist medical staff, but the management environment deteriorated more quickly than expected.
Competition among local hospitals to attract patients intensified, and changes in insurance reimbursement rates shook the revenue structure.
While fixed costs increased and revenue declined, the accumulated deficit widened, and, compounded by the burden of financial borrowing and equipment leases, total debt of 6.2 billion won was formed.
The client's hospital, facing continued delays in salaries, unpaid supply payments, and pressure from financial institutions, was in effect placed on the verge of closure.
A Rehabilitation Design Reflecting the Distinctive Features of Healthcare
Daeryun Law Firm LLP approached this matter not as a corporate insolvency but as a crisis of regional medical infrastructure.
Unlike general manufacturing or service businesses, a hospital has a high proportion of labor costs, revenue that depends on insurance reimbursement rates, and a complex structure of medical equipment leases and pharmaceutical claims.
Reflecting these characteristics, a repayment plan that could realistically be carried out was established.
Through negotiations with the creditors, approximately 58% of the total debt of 6.2 billion won was restructured, successfully reducing the final repayment amount to 2.6 billion won, and the hospital was able to proceed with rehabilitation without suspending its medical services.
The key was not merely a reduction of debt but a redesign into a financial structure under which operations could resume.
3. Hospital Rehabilitation | Differences From General Corporate Rehabilitation
With the recent decline in population and the concentration of hospitals in the metropolitan area, the financial difficulties of small and mid-sized medical corporations have intensified. As bankruptcy filings by medical corporations increase, the number of hospitals considering rehabilitation is also rising.
However, a medical corporation has a structure that differs from that of a general company.
A medical corporation is a non-profit corporation, so distributions are prohibited and there is no concept of shareholders.
For this reason, attracting outside investment is not easy, and a traditional M&A through the acquisition of equity is, in principle, impossible.
The court likewise makes its determination by comprehensively considering not only the possibility of financial recovery but also the public nature of the hospital, the continuity of medical services, and whether it is an indispensable medical institution within the community.
In other words, hospital rehabilitation cannot be achieved by a recovery of profitability alone, and the maintenance of public function operates as a key criterion.
Understanding the M&A Structure in Medical Corporation Rehabilitation
In medical corporation rehabilitation, an M&A proceeds, unlike in a general company, not through the acquisition of equity but through securing the right to compose the board of directors.
The acquirer injects funds in accordance with the rehabilitation plan and secures management control through the resignation of the existing directors and the appointment of new directors. This process presupposes court approval and consultation with the competent authority.
Because a change of the board of directors is subject to the permission of, or reporting to, the Ministry of Health and Welfare, an attempt to change the structure without administrative approval can give rise to the risk of revocation of the medical institution's license.
Accordingly, hospital rehabilitation requires a strategic design that encompasses not only insolvency law but also medical law and administrative law.
Rehabilitation Procedure Checklist
The key items that must be reviewed when preparing for hospital rehabilitation are as follows.
✔ A detailed analysis of the current debt structure and the types of creditors
✔ A review of the structure of medical equipment leases and pharmaceutical company claims
✔ An inspection of Ministry of Health and Welfare licensing and the rules on basic property
✔ A design of a labor-cost structure that can operate without reducing medical services
✔ A prior simulation of the likelihood of confirmation of the rehabilitation plan
✔ The establishment of an external communication strategy to prevent the loss of patients
✔ A review of the need to restructure the board of directors and of the administrative approval procedure
For hospital rehabilitation, the stage of designing the rehabilitation plan, rather than the filing itself, determines success or failure.
Daeryun's Assistance and Practical Implications
In medical corporation rehabilitation cases, Daeryun Law Firm LLP responds in an integrated manner, covering the design of the rehabilitation procedure, the structuring of creditor negotiations, the establishment of a strategy for consultation with the Ministry of Health and Welfare, the preparation of measures to secure operating funds, the stabilization of the board of directors' structure, and the design of measures to maintain the employment of medical staff.
This case carries significance beyond the figure of a 58% debt restructuring.
It demonstrates the importance of a hospital rehabilitation strategy in that the hospital's continued existence was preserved without suspending medical services, a gap in regional healthcare was prevented, and a foundation for rebuilding was established.
Hospital rehabilitation is not an end but a new beginning. If management difficulties have begun, it may already be the point at which an early response is needed.
The formulation of a careful strategy is, above all, important.
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