Korea's Corporate Restructuring Promotion Act became effective on September 15 2001. The Act supersedes other laws governing corporate restructuring.
The Act provides the creditors' committee with powerful roles in initiating, coordinating and carrying out restructuring procedures. The committee may define a company as a probable insolvent company (PIC). Upon issuance of a notice for a committee meeting, all creditors' rights for payment will be suspended for a week. Thereafter, the committee will pass resolutions on the suspension period of creditors' rights (up to four months), the rescheduling of debts (including new loans to the PIC) and enter into a memorandum of understanding with the PIC concerning an implementation plan for normalization of the PIC.
The Act requires literally all financial institutions to comprise the committee. Financial institutions not consenting to the resolution of the committee may withdraw from the committee and will be entitled to sell their loans to the committee. As such, the committee will be able to proceed with the restructuring as planned even if some creditors are against on it.
During the legislative stage, the Act was criticized by many who argued that the Act may deprive creditors of their basic rights. The Act is an important piece of legislation, however. It remains to be seen whether Korea's corporate restructuring will accelerate and, more importantly, creditor banks will now take the initiatives for corporate restructuring in Korea.