Corporate Restructuring Be Accelerated

From the second half of this year, if the main creditor bank designates a company as a `potential insolvent company`, other creditors cannot demand the designated company to pay the debt for three months.

The major political parties, the ruling Millennium Democratic Party, the United Liberal Demcrats, and the opposition Grand National Party, announced yesterday the Corporate Restructuring Acceleration Law.

According to the new bill, the main creditor bank can lead the creditors` consultative meeting designating the potential insolvency. The financial institutions who violate the decision by this consultative meeting will be responsible for the compensation for the financial losses. The financial companies who refute to follow the consultative meeting`s decision can request to pay the debt on condition of partially remitting the debt.

The creditors group should receive the memorandum expressing the reduction of capital or the resignation of the right of management from the controlling shareholder, and the agreement on restructuring from the labor union. This bill will be exerted from the second half of this year for 5 years.

▼ Legal apparatus supports restructuring

Thus far, the self-regulating restructuring via the `work-out` agreement has not been appropriately pursued due to the internal chasm of the creditors. But the new law can enforce the restructuring on the legal basis.

Thus far, there have been much hullabaloo from the formation of the creditors. But the Korea Deposit Insurance Corporation and the Korea Asset Management Corporation as well as all financial institutions should follow the new law.

Although the opposing creditors can demand for the payment of the debt to the consultative meeting or the debtor company, they must have the debt partially cancelled.

The main creditor banks will decide to put the ailing companies under the banks` management or the creditors` joint management.

▼ Creditors violating the agreement are responsible for the compensation of the financial losses.

The new law specified to impose the penalty for the breaching of agreement or the compensation for financial losses on the financial institutions violating the agreement of the consultative meeting. And in case that the creditor banks fail to reach an agreement, the coordination committee, comprised of 5 private experts, has the authority to manage.

If the creditors designate an ailing company as the potential insolvent company, the designated company instantly should go through the bankruptcy procedure. Hence, the new law can prevent the insolvency from spreading by accelerating the `work-out` procedure.

▼ New law will be applied to some subsidiaries of Hyundai group.

If this new law is passed, it will accelerate the nation`s corporate restructuring. It can prevent from the free ride of some creditor banks, and the controlling shareholder and the labor union of the ailing company will share the responsibility for the insolvency. The financial sector anticipates that it will be much easier to `work out` some subsidiaries of Hyundai group to whom the new law will be applied.

Byun Yang-Ho, the Director of Financial Policy Bureau of Ministry of Finance and Economy, told that ``according to the new law, since the consultative meeting of the creditors can quickly make a decision which companies will be saved or expelled, the national economy will no longer suffer from the delayed restructuring.

Choi Young-Hae moneychoi@donga.com