There are four distinct laws governing debtor rehabilitation and
bankruptcy in Korea: the Corporate Reorganization Act; the
Composition Act; the Bankruptcy Act and the Individual Debtor
Rehabilitation Act. In an effort to overhaul the insolvency system,
the Korean government has enacted the Debtor Rehabilitation and
Bankruptcy Act (the DRBA), which will take effect in April
2006.
The DRBA will allow the creditors meeting to be convened even in
bankruptcy proceedings and will enhance creditor protection by
conferring a greater level of authority to the creditors
meeting.
The existing regulations on composition proceedings will be
repealed, and regulations on corporate reorganization, which now
only apply to limited liability companies (chusik hoesa),
will apply to all debtors.
The DRBA has also paved the way for early rehabilitation for
insolvent companies by allowing the transfer of material business
with the court's prior approval before the debtor company's
rehabilitation plan is approved.
Unlike the current corporate reorganization scheme, whereby the
existing chief executive is removed from management, the DRBA will
permit the existing chief executive to be appointed as trustee by
the court.
Under the DRBA, the scope of transactions subject to avoidance
will be increased to include, among others, creation of security or
discharge of debt obligations by a troubled company in favour of
any of its affiliates or special related persons at any time: (i)
after the company submits a petition for rehabilitation or
bankruptcy; or (ii) 12 months before the company submits the
petition.
Implementation of the DRBA is expected to enhance the efficiency
of the rehabilitation and bankruptcy proceedings and provide
effective and equitable remedies for creditors.