Seocho-gu lawyer, “Corporate rehabilitation and corporate bankruptcies increase due to COVID-19, management needs to make careful decisions.”

Recently, as domestic demand and exports continue to slump in the aftermath of the novel coronavirus infection (Corona 19), the perceived economic performance of domestic small and medium-sized businesses is rapidly slowing down. According to the data released by the Korea Federation of Small and Medium Businesses, the economic outlook index is at an all-time low since the start of industry-wide statistics in 2014, and the survey also showed management damage and difficulties related to the crisis.

According to the data, 64.1% of small and medium-sized businesses responded that business damage was severe due to the COVID-19 incident. In addition, 36.9% answered 1 to 3 months and 28% 3 to 6 months about the period they can endure if the current economic situation continues, foreshadowing the severity of the economic crisis caused by COVID-19.

A lawyer from the corporate legal team of Daeryun Law Firm, which is in charge of corporate consulting and legal advice, said, “Recently, after COVID-19, inquiries about corporate rehabilitation and corporate bankruptcy of companies with poor financial conditions are increasing. Corporate rehabilitation and corporate bankruptcy are fields that require careful judgment as they must carefully consider the procedures and pros and cons of each and come up with an appropriate method.”

The corporate rehabilitation system adjusts the legal relationships of stakeholders such as creditors, shareholders, and equity holders for debtors who are experiencing a crisis due to financial difficulties. According to the legal community, it seeks to efficiently rehabilitate debtors and businesses, and in the case of a temporary liquidity crisis, there is a possibility of maintaining existing management rights and majority shareholder rights even after going through rehabilitation procedures.

On the other hand, the corporate bankruptcy system is a procedure in which a corporation is unable to repay its debts with its own assets, so the court declares bankruptcy, converts the corporation's assets into cash, and distributes them to creditors according to the priority of rights and amount of claims. In particular, when proceeding with bankruptcy proceedings, a chain of legal disputes may arise, such as forced execution by creditors or criminal charges due to debt, so expert assistance is required.

Attorney at Daeryun Law Firm's Corporate Legal Team explained, “The decision to reorganize the company or declare bankruptcy must be made in consideration of the company's survival value and corporate liquidation value. If the company is experiencing a liquidity crisis such as temporary or structural financial difficulties, the corporate rehabilitation system can be considered rather than bankruptcy. If rehabilitation is difficult due to the inability to pay wages or excess debt, the corporate bankruptcy system can be considered.”

In addition, he advised, “In order to use corporate rehabilitation and bankruptcy as a management strategy for crisis management, appropriate procedures must be carried out through legal experts with long-term know-how and experience in multiple cases to reduce losses to the debtor as well as stakeholders. If the golden time is missed, the situation may worsen and debt may increase, so it is most important to respond early in crisis management.”

Daeryun Law Firm, which provides legal services in the fields of corporate litigation, listing, corporate bankruptcy (corporate rehabilitation, corporate bankruptcy), and restructuring, has offices in the Seoul area, Busan, Daegu, Incheon, Gwangju, Daejeon, Ulsan, Suwon, Changwon, Cheongju, Jeonju, Uijeongbu, Chuncheon, Jinju, and Jeju, with an office located in Seocho-gu (Seocho-dong), Seoul.



Dailyan Reporter Kim Yun-seong (kimys@dailian.co.kr)

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