The Finance and Economy Committee of the National Assembly of Korea has recently passed a resolution on the Corporate Restructuring Promotion Act (the Bill). The Bill is pending deliberation by the Legislation and Judiciary Committee, and a parliamentary plenary session. If enacted, it is expected to be put into force towards the end of September 2007 and to be effective until December 31 2010.
The Bill differs from the old Corporate Restructuring Promotion Act, which expired in 2005, in the following respects:
First, the Bill allows the assessment of credit risks of customer enterprises to be independently undertaken by individual creditor financial institutions, a task that had to be undertaken in accordance with the standards set by the Financial Supervisory Commission (the FSC) under the old Act.
Second, unlike the old Act, the Bill permits creditor financial institutions to extend additional credit to enterprises with insolvency signs before the enterprise enters into an agreement to execute plans for normalizing the management with the Council of Creditor Financial Institutions (the Creditor Council).
Third, the Bill permits a sale of convertible shares held by creditor financial institutions that is over 50% of the total issued shares with voting rights plus one share, to a third party purchaser by way of a resolution of the Creditor Council, without obtaining an undertaking from the third-party purchaser that it will comply with the provisions of the old Act.
Fourth, the Bill stipulates that, in the case of the conversion of liabilities into equity investments or readjustment of claims pursuant to a resolution of the Creditor Council to undertake a corporate restructuring, the special provisions (which exclude the application of the Banking Act or other legislation containing provisions placing investment restrictions) will apply for two years from the date of either the completion or suspension of the relevant administrative procedures, provided the two-year period may be extended with the approval of the FSC.
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