Insolvency Law at South Korea
South Korea's insolvency framework is governed by the Debtor Rehabilitation and Bankruptcy Act (DRBA), which provides a comprehensive legal structure for both corporate and individual insolvency proceedings. The Seoul Bankruptcy Court serves as the primary judicial institution for insolvency matters, handling a significant portion of national corporate and personal insolvency cases. (The Judiciary > Proceedings > Bankruptcy, Insolvency 2024 - South Korea | Global Practice Guides | Chambers and Partners)
⚖️ Key Insolvency Procedures in South Korea
1. Rehabilitation Proceedings (Corporate Restructuring)
Purpose: Designed to facilitate the recovery of financially distressed businesses by restructuring debts and operations.
Process: The court appoints a receiver, often the debtor's existing management, to oversee the rehabilitation process. A rehabilitation plan is developed, which may include debt rescheduling, debt-equity swaps, and operational restructuring. The plan requires approval from creditors and the court.
Duration: Typically spans 10 years; however, simplified proceedings may reduce this to 5 or 7 years for smaller enterprises.
Debtor-in-Possession (DIP): In certain cases, the debtor retains control over operations during the rehabilitation process. (Corporate Insolvency Proceedings in South Korea - Global Restructuring Review)
2. Bankruptcy (Liquidation) Proceedings
Purpose: Implemented when rehabilitation is not feasible, leading to the liquidation of the debtor's assets to satisfy creditor claims.
Process: A bankruptcy trustee is appointed to manage the liquidation process, including asset collection, sale, and distribution of proceeds.
Outcome: The debtor ceases to exist as a legal entity post-liquidation.
3. Individual Rehabilitation
Eligibility: Individuals with debts below a statutory threshold and a likelihood of stable future income.
Process: Debtors submit a repayment plan, which is reviewed by a court-appointed trustee. Upon court approval, the debtor repays a portion of the debt over a period not exceeding 5 years. Successful completion may lead to discharge of remaining debts. (The Judiciary > Proceedings > Bankruptcy)
4. Autonomous Restructuring Support (ARS)
Purpose: An intermediate procedure between out-of-court workouts and formal rehabilitation proceedings.
Process: Debtors negotiate with creditors under court-issued stay orders, with support from court-appointed mediators and Chief Restructuring Officers (CROs). If negotiations succeed, the rehabilitation petition can be withdrawn; otherwise, formal proceedings commence. (Insolvency 2024 - South Korea | Global Practice Guides | Chambers and Partners)
🏛️ Court Structure and Specialized Courts
Seoul Bankruptcy Court: Handles a significant portion of national insolvency cases.
Specialized Bankruptcy Courts: Established in Suwon and Busan in 2023, with plans for additional courts in Daejeon, Daegu, and Gwangju by 2026. (Insolvency 2024 - South Korea | Global Practice Guides | Chambers and Partners)
🌐 Cross-Border Insolvency
International Cooperation: The Seoul Bankruptcy Court has memorandums of understanding with foreign courts and is a member of the Judicial Insolvency Network (JIN), facilitating cross-border insolvency proceedings.
Foreign Creditors: Foreign entities are treated equitably in South Korean insolvency proceedings, though practical challenges may arise due to language barriers. Efforts are made to provide English translations and updates for foreign creditors. (Insolvency 2024 - South Korea | Global Practice Guides | Chambers and Partners)
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