Most Read Contributor in South Korea, February 2017
On 19 May 2016, the National Assembly passed the bill to amend
the Debtor Rehabilitation and Bankruptcy Act ("DRBA").
Key amendments include (1) improvements to the early proposed
rehabilitation plan submission policy; (2) broadened scope of
creditor participation in the proceedings; and (3) stronger
protection of creditors with commercial claims. The revised DRBA is
expected to enter into force 3 months after promulgation.
I. Improvements to the early rehabilitation plan proposal
In this version of the amended Act, (a) the creditor whose claim
amount is equal to or larger than one half of the total amount of
debt owed by the debtor, or (b) the debtor with approval of the
foregoing creditor are allowed to make an early submission of the
proposed rehabilitation plan. In case of such early submission the
party that filed the proposed rehabilitation plan must also file
the list of secured, unsecured creditors and shareholders
("creditors list") before the commencement of the
rehabilitation proceeding. Therefore, in case there is an early
submission of the proposed rehabilitation plan, the administrator
is not required to prepare and submit the creditors list and the
creditors may proceed to the subsequent process of filing their
claim reports with the bankruptcy court immediately after
II. Broader scope of participation for rehabilitation
1. Changing the way creditor committees are formed and
broadening the scope of creditor committees'
The DRBA provides for creditor committees which are constituted
under certain conditions to protect the interests of the creditors.
With respect to the management of these creditor committees, the
revised DRBA provides that (a) when it is not a case of debtor in
possession and the court appoints a third party administrator, the
creditor committee may nominate a candidate for the administrator;
(b) the court must receive comments from the creditor committee
when the court appoints an investigator or approves new loans for
2. Broadening the scope of authority for creditors
providing new loans
In order to encourage creditors to provide new loans to the
debtor who is undergoing a rehabilitation proceeding, the revised
DRBA provides that (i) the creditor who provides new loans have the
power to submit their comments regarding important matters in the
rehabilitation proceeding and request the administrator to provide
materials; (ii) when there is a specific purpose for the new funds,
the administrator is required to report their usage to the court;
and (iii) the court may provide information regarding the debtor to
the person providing the new loans.
III. Reinforcing protection for creditors whose claims arise
from commercial trade
The revised DRBA, in order to protect the commercial claim
creditors who trade commercially with the debtor and thereby
promote effective rehabilitation of the debtor, (a) the claim for
payment of commodities that have been supplied to the debtor in the
course of continuous and normal business activities within 20 days
of the filing an application for commencement of the rehabilitation
proceedings shall be categorized as "public interest
claims," which have priority over rehabilitation claims; and
(b) the conditions for prioritized payment of rehabilitation claims
to creditors who are mid to small size businesses have been
relaxed, in order to facilitate payment of such claims before
payment of other rehabilitation claims.
IV. Provide for concentrated jurisdiction
The revised DRBA provides that in a corporate rehabilitation
proceeding, if the number of creditors is 100 or more and the total
amount of debt exceeds the amount set out in the Supreme Court
Rules, then the application to commence the rehabilitation /
bankruptcy proceeding may be filed with the Seoul Central District
Court or the relevant district court, thereby providing legal
grounds for concentrated jurisdiction.
Originally published Insolvency Legal Update
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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