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
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repealed, and regulations on corporate reorganization, which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.