CONTENTS
- 1. Court Receivership Application | Concerns Over Delisting of Sambu Construction and Beomyang Construction
- - Beomyang Construction's Situation
- - Sambu Construction's Situation
- 2. Court Receivership Application | Corporate Structure After Filing for Rehabilitation
- - The Corporate Rehabilitation Procedure and the Conditions for Maintaining a Listing
- - Key Variables in the Rehabilitation Procedure
- 3. Court Receivership Application | Response Strategies a Company Must Review
- - Comprehensive Legal Advisory for Responding to a Corporate Crisis
1. Court Receivership Application | Concerns Over Delisting of Sambu Construction and Beomyang Construction
The term "court receivership," which is commonly used in connection with an application for court receivership, is a designation customarily used in practice rather than an official legal term.
Under the former framework of the Company Reorganization Act, the term "company reorganization procedure" was used. After the Debtor Rehabilitation and Bankruptcy Act was enacted, however, the various systems such as company reorganization and composition were consolidated, and the framework was reorganized into the current "rehabilitation procedure" system.
Accordingly, the official designation under the current law is the rehabilitation procedure, and when it applies to a corporation, it is commonly referred to as the corporate rehabilitation procedure.
A case showing that the normalization of a company's management is not easy even after an application for court receivership has emerged in the construction industry.
The Korea Exchange recently issued a disclosure stating that Sambu Construction and Beomyang Construction face concerns over delisting.
Both companies are undergoing the corporate rehabilitation procedure, but they have fallen into a state of complete capital impairment, leaving the question of whether their listings can be maintained uncertain.
Beomyang Construction's Situation
In the case of Beomyang Construction, total equity was recorded at negative 55.6 billion won.
The Korea Exchange stated that, if the company fails to prove that the grounds for its capital impairment have been resolved, it may fall under the delisting criteria.
Beomyang Construction is a construction company ranked 182nd in construction capacity evaluation. It recorded operating profit until 2021, but its situation deteriorated sharply thereafter.
Its results over the past four years are as follows.
- 2022 operating loss of 12.3 billion won
- 2023 operating loss of 10.4 billion won
- 2024 operating loss of 38.2 billion won
- 2025 operating loss of 49.6 billion won
The cumulative deficit over the four years amounts to 110.5 billion won.
In addition, the cancellation of construction contracts followed, deepening the management difficulties.
From last year until recently, nine construction contracts were canceled, and the scale of the cancellations was approximately 241.7 billion won, which is more than three times the company's annual revenue.
Sambu Construction's Situation
Sambu Construction has likewise faced difficulties following its application for court receivership due to a deteriorated financial structure.
Sambu Construction's total equity stood at negative 117.7 billion won, leaving it in a state of complete capital impairment.
The Korea Exchange similarly stated that, if it cannot confirm whether the capital impairment has been resolved, the company may fall under the delisting criteria.
Sambu Construction is a construction company established in 1948 that holds the first license issued for the civil engineering and building construction business, but it has recorded large-scale deficits over the past several years.
- 2022 operating loss of 80.8 billion won
- 2023 operating loss of 78.2 billion won
- 2024 operating loss of 112.5 billion won
As its borrowings increased sharply, its debt ratio rose to 838%, and it ultimately filed for the corporate rehabilitation procedure.
2. Court Receivership Application | Corporate Structure After Filing for Rehabilitation
An application for court receivership is a procedure that, when a company is unable to repay its debts in the ordinary course, restructures the debt under the supervision of the court so that the business may continue to operate.
In the corporate rehabilitation procedure, the following restructuring methods are carried out together.
- Debt restructuring and reduction
- Debt-to-equity conversion
- Asset disposal
- Reorganization of the business structure
- Attraction of investment or M&A
In the rehabilitation procedure in particular, attracting new investment or a merger and acquisition often serves as a key variable in a company's normalization.
The Corporate Rehabilitation Procedure and the Conditions for Maintaining a Listing
For a company to normalize after an application for court receivership, the mere commencement of the rehabilitation procedure is not sufficient.
In the case of a listed company in particular, if a state of capital impairment persists, a risk of delisting may arise.
Representative grounds for delisting are as follows.
Beomyang Construction was previously placed under delisting review due to a disclaimer of opinion in a past audit report, and now, with the problem of capital impairment added on top, whether its listing can be maintained is once again at issue.
In this way, even while the corporate rehabilitation procedure is ongoing, maintaining a listing may be difficult if the financial structure is not improved.
Key Variables in the Rehabilitation Procedure
In the corporate rehabilitation process, the following factors act as important variables.
- The possibility of attracting new investment
- Consultation with creditors and debt restructuring
- Reorganization of the business structure
- Whether a merger and acquisition (M&A) is concluded
In the case of a listed company in particular, improving the financial structure and resolving capital impairment are assessed as the most important tasks.
3. Court Receivership Application | Response Strategies a Company Must Review
This case shows that, although an application for court receivership may be a company's last option, reviewing the financial structure in advance and preparing a response strategy can be highly important.
A corporate crisis, rather than arising suddenly, more often develops as accumulated deficits, increased borrowing, and worsening cash flow build up over a long period.
A company therefore needs to review the following factors before its financial structure deteriorates.
Management Area | Key Management Methods | Matters for the Company to Note |
Management of the borrowing structure | Review of financial institution borrowings and the maturity structure | A high proportion of short-term borrowings can lead to a liquidity crisis |
Cash flow management | Analysis of debt repayment capacity relative to operating cash flow | Check whether financial costs are increasing faster than operating profit |
Business structure management | Improvement of a low-profitability business structure | Continually loss-making divisions need to be wound down |
Contract risk management | Management of major construction contracts and projects | Analyze the financial impact when a contract cancellation occurs |
Investment attraction strategy | Review of a strategic investor (SI) or a financial investor (FI) | Attracting investment is a key variable during the rehabilitation process |
Restructuring strategy | Review of asset disposal and M&A | Responding at the early stage of a crisis is important |
Comprehensive Legal Advisory for Responding to a Corporate Crisis
An application for court receivership is a situation in which various legal risks, such as disputes with creditors, contract cancellations, attracting investment, and questions of management liability, arise at the same time.
In the case of a listed company in particular, there are many situations in which complex problems, such as capital impairment, delisting review, and the attraction of investment and M&A procedures, must be resolved simultaneously.
Attorneys handling insolvency matters at Daeryun Law Firm LLP, in collaboration with attorneys handling corporate matters, comprehensively analyze a company's financial structure and creditor structure to present a response strategy suited to the company's situation, including whether to proceed with the corporate rehabilitation procedure, strategies for creditor negotiations, and the design of the structure for attracting investment and for M&A.
The firm also provides legal advice throughout the entire process, from the stage of filing for the rehabilitation procedure to the preparation of the rehabilitation plan, consultation with creditors, responses at the creditors' meeting, and the court approval procedure.
Preparing a proactive response strategy before a company's financial structure deteriorates is an important way to reduce the likelihood that the situation will lead to an application for court receivership.
If you face a situation requiring a response to a corporate financial crisis or the court receivership application procedure, we invite you to confirm a specific course of action through the 🔗consultation booking for corporate rehabilitation and bankruptcy matters.
