From 1998 to 2000, the Corporate Restructuring Committee (CORC), an organisation established by 205 financial institutions pursuant to the Financial Institutions Arrangement for Facilitating Corporate Restructuring, aggressively pursued and conducted corporate restructuring in Korea (workouts), while the Financial Supervisory Commission supervised workouts of financial institutions. Upon the dissolution of the CORC in 2001, the principal creditor banks of the workout companies took the lead in corporate restructuring pursuant to the Corporate Restructuring Promotion Act (CRPA).
However, the arrangement under the CRPA has proven to be inadequate for the past few months, given that the creditor banks were often reluctant to take an active role in the corporate restructuring process, especially in light of the recent turmoil in the global and local financial markets. In response to the dissatisfaction with the CRPA arrangement, on December 9 2008 the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) introduced a new scheme whereby creditor financial institutions (CFIs) may implement corporate restructuring more expeditiously and systematically.
According to the FSC and the FSS, the relevant organisations and their expected roles are as follows.
Organisation for the Improvement of Company Financial Status (OICFS)
On November 28 2008, the FSC and FSS established the OICFS to improve the efficiency of the corporate restructuring process. The OICFS will support and assist the Mediation Committee of Creditor Financial Institutions (MCCFI). It is chaired by the governor of the FSS.
Council of Creditor Financial Institutions (CCFI)
The principal creditor bank will establish a CCFI for each workout company. The reorganisation plan for the workout company will be negotiated and agreed at the CCFI.
Mediation Committee of Creditor Financial Institutions
If the CCFI fails to agree on a reorganisation plan for a large company whose debt is at least W50 billion ($37 million) or if a CFI asks for the MCCFI's review on the necessity or scope of financial assistance for the workout company, the MCCFI will intervene and help to resolve the disagreements based on the CRPA.
In short, the new scheme envisions the establishment of the OICFS and the delegation of power to the MCCFI. It remains to be seen whether Korea's corporate restructuring will accelerate and, more importantly, whether creditor banks will be encouraged to take the initiative for corporate restructuring. The pressure on financial institutions to uphold a certain level of Bank of International Settlements capital adequacy ratio is still mounting in the present economic difficulties. Therefore, Korean financial institutions will still be inclined to refrain from expediting corporate restructuring. As such, the success of the new corporate restructuring scheme will mainly depend on how effectively and proactively the OICFS and the MCCFI will work.
Eun Soo Lim and Kyu Sang Chung