[Interview] "If Only the Shell Remains, Rehabilitation Is Impossible"···Record-High Corporate Bankruptcies, What Is the Exit Strategy?

- Nearly 1,300 cases in the first half of this year···a liquidity crisis that spares no industry or size
- "Vague endurance is poison···reduce civil and criminal risk with an orderly exit"

In the wake of prolonged high interest rates and sluggish domestic demand, a wave of corporate bankruptcies is becoming reality. According to the Monthly Court Statistics Bulletin, the number of corporate bankruptcies filed with courts nationwide in the first half of this year was 1,299, a surge of about 17.66% from 1,104 in the same period last year. This figure has already outpaced the growth rate of last year, which recorded an all-time high by surpassing 2,000 cases annually for the first time since related statistics began to be compiled. Now that we have entered an era of great bankruptcy, what survival and exit strategies should companies seek amid a cliff-edge liquidity crisis? We met with Attorneys Kim Won-sang and Hwang Bo-young of Daeryun Law Firm, who have handled numerous corporate bankruptcy and rehabilitation cases, to examine the realities in the field and legal response measures.

The sense of crisis felt in the field is far more serious than the statistics. Attorney Kim Won-sang diagnosed that the wave of bankruptcy is sweeping in regardless of industry or size. Attorney Kim explained, "In the past, it was mainly small and medium-sized enterprises with weak financial structures that filed for bankruptcy, but recently, construction firms hit by PF (project financing) insolvency, ventures and startups whose investment funds have dried up, and even seemingly solid distribution platforms and mid-sized enterprises are being driven to bankruptcy," and "This past May, the delinquency rate on bank loans to SMEs entered the 1% range, recording an 11-year high, and combined with the recent Bank of Korea base rate hike, companies' interest repayment burden has crossed a critical threshold."

The biggest mistake companies in crisis make is missing the golden time. Companies suffering from a cash crunch usually first consider corporate rehabilitation, which adjusts debts to save the company, but there are countless cases where they miss the timing and are forced to choose bankruptcy, which completely extinguishes the company. Attorney Hwang Bo-young pointed out, "To undergo rehabilitation proceedings, minimal operating funds and future profit-generating capacity must be in place," and "When executives, determined to save the company by any means, exhaust their personal assets and take on high-interest private loans to keep juggling debts, and then come to a lawyer once all assets are squandered and only the shell remains, the only option left is bankruptcy."

He went on, "However, if a company is still at a stage where minimal room for normalization remains, rather than immediately entering formal rehabilitation proceedings, it needs to first review the Autonomous Restructuring Support (ARS) program," and "While the court defers the commencement of rehabilitation proceedings for a certain period, the company can buy time to negotiate autonomously with creditors, and since it is before the label of 'rehabilitation company' is attached, it can also reduce collateral damage such as loss of business partners or a sharp drop in credit rating."

Experts emphasize that if rehabilitation is impossible, an exit strategy for an orderly withdrawal must be established quickly. This is because if a CEO neglects the business site or chooses to abscond just to save even the cost of bankruptcy proceedings, the CEO becomes entangled in irreversible legal risk.

Attorney Kim Won-sang explained, "If a CEO neglects the corporation and fails to pay employees' wages or severance pay, the CEO cannot avoid criminal punishment for violating the Labor Standards Act, and unpaid four major insurance premiums and taxes are also imposed on the representative as a secondary tax liability, following like a tag," and "On the other hand, if the corporate bankruptcy system is utilized, workers' unpaid wages can be resolved to a certain extent through the substitute payment (formerly 'chedanggeum') system, and since assets are fairly distributed under the court's thorough control, the CEO's civil and criminal liability can be greatly reduced."

In closing, the two attorneys agreed that objective financial diagnosis and decisiveness are the first step to corporate survival. Attorney Hwang Bo-young advised, "Continuing hope-torture in a bottomless-pit manner brings the worst outcome not only for the company itself but for creditors and workers alike," and "While the corporation still has minimal breathing room, one must receive an expert's objective diagnosis and coolly decide whether to aim for a fresh leap through rehabilitation or to minimize damage through an orderly bankruptcy."

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[Interview] "If Only the Shell Remains, Rehabilitation Is Impossible"···Record-High Corporate Bankruptcies, What Is the Exit Strategy? (Go to link)