CONTENTS
- 1. Corporate Insolvency | Increase in Choosing “Completion of the Development” Instead of a Refund
- - A Case in Which Construction Was Halted Due to the Contractor's Insolvency
- 2. Corporate Insolvency | The Structure of Insolvency Risk in the Construction Industry
- - Financial Response Strategies That Construction Companies Should Review
- 3. Corporate Insolvency | Comprehensive Legal Advisory for Construction Company Crisis Response
1. Corporate Insolvency | Increase in Choosing “Completion of the Development” Instead of a Refund
Corporate insolvency refers to a situation in which a company fails to repay its debts in the ordinary course and reaches a state of inability to pay.
In the construction industry in particular, when cash flow deteriorates sharply due to changes in the external environment, such as project financing (PF), rising construction costs, and increasing unsold inventory, there is a high likelihood that this will lead to corporate insolvency.
Changes are also appearing in how housing presale contract holders respond following the insolvency of a construction company.
Recently, where apartment construction has been halted due to the bankruptcy or insolvency of a construction company, the number of contract holders choosing “completion of the development” through the resumption of construction, rather than receiving a cash refund from the Korea Housing and Urban Guarantee Corporation (HUG), has been found to be increasing.
This is because the refunded presale payments alone make it difficult to obtain housing of a comparable level again in the same area.
In the end, as more contract holders seek to secure “their own home” by resuming construction even at the cost of delayed occupancy, a trend is emerging in which the method of guarantee fulfillment is shifting from “refund fulfillment” to “completion of the development”.
In fact, according to HUG's data on the status of guarantee fulfillment, the volume for which completion of the development was decided in 2025 was 730 units, an increase of about fourfold compared to 185 units the previous year.
By contrast, the volume under refund fulfillment, the cash refund method, decreased from 571 units in 2024 to 427 units in 2025.
In addition, while cases of completion of the development were previously concentrated in certain provincial areas such as Daegu, in 2025, 368 units in Gyeonggi Province alone were included, indicating that the trend has expanded to the Seoul metropolitan area.
Behind this change lie sharply rising construction costs.
According to the Korea Institute of Civil Engineering and Building Technology, the construction cost index has risen by more than 20% over the past three years, reaching a record high. In major redevelopment projects in Seoul and the metropolitan area, construction costs have risen to around 10 million won per pyeong, significantly increasing the burden on projects.
For this reason, analysts note that even when presale contract holders receive a refund, they judge it difficult to obtain housing of a comparable level in the current market, and an increasing number are choosing completion of the development as a “strategy to hold on to a real asset.”
However, it takes considerable time before the actual method of guarantee fulfillment is determined.
As of the end of 2024, the number of incident project sites for which the refund or presale method had not been determined was 4,561 units, the largest figure in the past four years.
It has also been pointed out that the longer the process of finding a successor contractor takes, the greater the possibility that financing costs and the burden of delayed occupancy will be passed on to contract holders.
A Case in Which Construction Was Halted Due to the Contractor's Insolvency
Cases in which the insolvency of a construction company leads to actual project delays are also emerging.
In the Seocheon Specialized Market redevelopment project in Chungcheongnam-do, the contractor, Haeyu Construction, entered court receivership, the contract was terminated, and construction was halted.
This project, with a total project cost of 41.9 billion won, was pursued on a design-build (turnkey) basis and broke ground in 2024, but construction has been halted for several months due to the contractor's insolvency.
The original completion target was April 2027, but it has been suggested that if a new contractor must be selected again, completion could be delayed until 2028.
In particular, this project involves the redevelopment of a traditional market that was completely destroyed by a large fire in 2024, and local merchants are continuing their businesses in temporary facilities.
The merchants have appealed that they face a crisis to their livelihoods and have requested measures to address the harm, but the local government and the public institution acting as the project sponsor have not been able to present specific compensation measures.
In this way, it has been pointed out that the insolvency of a construction company is a risk factor across the industry, in that it does not stop at being merely a company's management problem but can have a wide-ranging impact on the local economy and stakeholders.
2. Corporate Insolvency | The Structure of Insolvency Risk in the Construction Industry
The main causes of corporate insolvency in the construction industry are as follows.
- A sharp rise in construction costs
- A downturn in the real estate market
- The burden of project financing (PF)
- The structure of long-term construction projects
- An increase in unpaid construction payments
In particular, because construction projects proceed on a large-scale upfront investment structure, the construction industry is one in which the entire financial structure of a company can deteriorate sharply once its cash flow is blocked.
Financial Response Strategies That Construction Companies Should Review
Recent cases show that, in the construction industry, corporate insolvency is not merely an individual company's problem but a structural risk in which the industry structure and the financial environment are combined.
Accordingly, rather than responding after a crisis arises, it is important for construction companies to establish a risk management strategy at the early stage of financial deterioration.
Financial Risk Management Strategies for Construction Companies
| Management Area | Main Management Methods | Points for Construction Companies to Note | Attorney Assistance Strategy |
|---|---|---|---|
| Construction cost management | Responding to rising raw material prices | When the prices of materials such as rebar and cement rise, project viability can deteriorate sharply | · Reviewing raw material supply contracts and designing price-fluctuation clauses · Establishing dispute response strategies in the event of suspension or delay of material supply |
| Funding structure | Reviewing PF loans and financing costs | When interest rates rise and presales are delayed, the burden of PF repayment expands | · Analyzing event-of-default (EOD) clauses in PF loan contracts · Advising on negotiations to restructure debt with financial institutions and on strategies for responding to creditor groups |
| Project management | Analyzing profitability by project | When the number of low-profit sites increases, the entire financial structure of the company can deteriorate | · Diagnosing the structure of distressed projects · Legal review of restructuring, such as suspension of a project or transfer of business rights |
| Contract structure management | Reviewing construction contracts and subcontracts | When construction is halted or a contract is terminated, losses can expand | · Reviewing prime contracts and subcontracts · Responding to damages and contract disputes when construction is halted |
| Investment attraction strategy | Securing new investors and contractors | A key element in normalizing a project after insolvency | · Designing the structure of M&A or transfer-of-construction-rights transactions · Advising on investment contracts and corporate acquisition negotiations |
| Restructuring strategy | Asset sales and reorganization of the business structure | Prompt restructuring is necessary in a financial crisis situation | · Sale of assets · Sale of separated business divisions · Review of corporate rehabilitation proceedings or workout · Legal advice on crisis response |
3. Corporate Insolvency | Comprehensive Legal Advisory for Construction Company Crisis Response
The insolvency of a construction company entails various legal risks beyond financial problems, including termination of construction contracts, subcontracting disputes, presale guarantee incidents, and PF financing problems.
In particular, because construction projects have complex contract structures and many stakeholders, a response that comprehensively reviews creditor negotiations, business restructuring, and investment attraction strategies is necessary.
The attorneys of Daeryun Law Firm LLP who handle construction, insolvency, and corporate matters analyze the financial structure and contractual relationships of construction companies and propose response strategies tailored to each company's situation, such as corporate rehabilitation, restructuring, and creditor negotiations.
They also provide comprehensive legal advice on construction contract disputes that may arise in construction projects, PF financing problems, and strategies for investment attraction and project normalization.
Establishing a proactive response strategy before a construction company's financial crisis deepens can be an important way to reduce the likelihood that it will lead to corporate insolvency.
If you face a financial crisis at a construction company or a legal issue related to corporate insolvency, you are welcome to confirm a direction for your response through the 🔗real estate attorney legal consultation reservation.
Daeryun draws on its accumulated experience to provide tailored legal services for your company.
