Court receivership called liquidation

The government and creditors are including court receivership under the category of liquidation in the second round of corporate restructuring, which is far from the original intention of restructuring, critics charge.

In fact, the restructuring is aimed at liquidating hopeless companies. Those who oppose the government plan contend that it would trigger unrest in financial market if unprofitable companies are maintained through court receivership.

In particular, creditor banks, which have decided to suspend workouts, agreed to court receivership of insolvent companies. So they criticize such an attitude as a typical moral hazard.

Last month, creditor banks have agreed to classify insolvent companies in four different categories, and such a decision calls for liquidating companies that are subject to court receivership.

The system of court receivership hardly can be understood as liquidation. It is a procedure of reviving an insolvent company by the court under the corporate liquidation law. Normally, it takes nearly 10 years for a company to revive through court receivership. With the sacrifice of creditors, insolvent companies enjoy a sort of privilege under the system of court receivership.

For this reason, companies kicked out of the workout program are applying for court receivership to avoid liquidation. Woobang and Miju applied for court receivership in August and September, and Dong An Construction Ind. also recently filed an application for court receivership. Among them, the court rejected Miju's application, and the company is now undertaking procedures for liquidation.

Kim Byung-Yeon, researcher at the Korea Institute of Finance, said that hopeless companies are required to be liquidated in order to provide financing to the remaining companies.

"If the company is too big that it would have a great impact to the nation's economy, only its viable business unit can be maintained while liquidating the remainder," he said.

However, some insist that application for court receivership isn't that negative. Han Jang-Soo, head of special management section of the Korea Development Bank, said that it is difficult to reach an agreement if a company is under workout program, but they can handle the company clearly according to the law if it is under court receivership.

An analyst at a foreign brokerage firm said that it would be acceptable if the court receivership is intended for liquidation.