Daewoo Motor goes bankrupt; to apply for court receivership soon

Creditors of ailing Daewoo Motor let the nation¡¯s second largest automaker go bankrupt Wednesday after its labor union refused to agree on a massive layoff program drawn up by the management for its self-rescue effort. The company will apply for court receivership in the next few days. Korea Development Bank, the main creditor, announced that the creditors let Daewoo Motor fall into final bankruptcy as the labor union did not approve the restructuring program, a precondition for fresh financial aid. Daewoo Motor defaulted on bills worth 44.5 billion from Seoul Bank and Korea First Bank on Monday. Creditors extended the payment deadline several times, but the firm failed to honor the maturing bills.

Gov. Uhm Rak-Yong of Korea Development Bank said that the creditor banks tried not to let Daewoo Motor go bankrupt but their effort was of no avail due to the resistance of the labor union.

He said that strong self-rescue efforts are required for the normalization of management and smooth negotiations on the sale of the company. If the earlier labor-management agreement guaranteeing the employment of workers for the coming five years is maintained, the negotiations with General Motors are expected to hit a snag, he added. Park Sang-Bae, a member of the board of directors of the main creditor bank, said that there would be no change in the creditors¡¯ position on no fresh loans for the firm unless the union gives comprehensive approval to the restructuring program even after it is put under court receivership. The creditors plan to proceed with negotiations for the sale of the automaker to a foreign investor such as General Motors while it is managed by the court. But there is a possibility that the company will undergo procedures for liquidation if the unionized workers refuse to make a written commitment on the self-help plan or the liquidation value is judged to be higher than the enterprise value.

If Daewoo Motor is placed under court receivership and the court decides to preserve its assets, all credits and debts will be frozen. This situation is feared to trigger a domino bankruptcy of its some 10,000 subcontractors as the Daewoo-issued promissory bills they received for supplying goods will also be suspended.

The creditor banks and financial institutions are also likely to suffer difficulties as they must prepare additional allowances for Daewoo Motor¡¯s bad debts. With regard to Daewoo Motor¡¯s bankruptcy, economic ministers, including Finance-Economy Minister Jin Nyum, held an emergency meeting to discuss how to help the subcontractors of the failed automaker. Presidents of commercial banks also got together to exchange views on plans to extend financial support to the subcontractors and help stabilize the market following Daewoo Motor¡¯s bankruptcy. The creditors plan to ask for specially guaranteed supports by the Credit Guarantee Fund and the Technology Credit Guarantee Fund to ease the liquidity crunch of the subcontractors. They also decided to ask the court to update the timetable for the court receivership.