[Editorial] Significance of Miju liquidation

The decision by the Seoul Bank and other creditors to suspend the workout processes of the Miju Corp. may be viewed as a full signal to dispose of ailing business firms. The Kim administration made it clear the day before the creditors' decision that it would eliminate any market uncertainties by taking bold steps to liquidate insolvent business enterprises that are unable to pay loans and financial costs out of their business profits and show no possibilities of resuscitation.

The firm Miju, though its business is not of a large scale, is drawing enormous attention from the business world, because Miju's chairman, Park Sang-Hee, is a legislative member of the ruling Millennium Democratic Party and holds the parliament's national representation seat, as well as the chairmanship of the Korea Federation of Small and Medium Business (KFSB). The Miju case represented a litmus test for the administration's transparent will and determination to liquidate insolvent business firms.

The Korea information service inc., which is in charge of investigating Miju's credit standing on behalf of the Miju creditors, concluded that the liquidation of Miju would be more in the interest of the creditors than letting the firm dilly-dally and engage in other businesses. Probably, Park's political influence, and not the firm's business merits, enabled ailing companies like Miju to stay in business with sustained bank loans.

A survey conducted by the Korea Economic Research Institute (KERI), an umbrella think-tank of the Federation of Korean Industries (FKI), found that some 20 percent of all Korean business enterprises were marginal firms unable to pay all debt service expenses such as loans and interests out of their business profits. Faltering businesses make the financial institutions insolvent due to their loans made to the firms.

Prompt restructuring of business enterprises is essential in order to secure the effectiveness of the restructuring of financial institutions. Bold measures of business restructuring are called for those marginal firms unable to sustain business management. This will help stabilize the unsettled financial markets and finance sound business firms.

The decision by the Seoul Bank, Miju's major creditor, to stop extending further loans make it inevitable that Miju will be managed under court receivership or steps for the firm's liquidation will have to be taken.

The more the number of firms under court receivership or bankruptcy, the greater the amount of unredeemable bank loans, despite the government's enormous fund injections into those banks. The cases of business owners' moral hazards that led to the firms' insolvency or workout processes are almost countless. On this account, the Miju case is not an exception.

We know that these owners of the companies with limited liabilities cannot be brought before the criminal or civilian court of justice unless they committed unlawful conduct. But, Korea's unique business environment often makes it difficult to differentiate the owner's personal assets from the firms' capital. The owners of those marginal firms under workout processes have in many cases abused this unique management situation to flight the company capital for the owner's personal assets. For that reason, we think it imperative to bring to justice the owners of workout firms if irregularities are uncovered by thorough investigations of their business conduct.