The National Assembly will revisit making the Corporate Restructuring Promotion Act (CRPA), the legal basis for creditor-led corporate restructuring (workouts), permanent. The Financial Services Commission submitted to the National Assembly a reform plan to strengthen links between courts and restructuring and to prepare comprehensive support measures for corporations to make the CRPA permanent.
According to the financial sector on the 27th, the National Policy Committee plans to prepare, in the second half, either an extension or a permanent measure for the CRPA, which expires on Dec. 26. Enacted in 2001 as a temporary law, the CRPA has been extended seven times.
The National Assembly will soon call in related ministries, including the Financial Services Commission (FSC) and the court administration, to discuss whether to re-extend or make the CRPA permanent. The Financial Services Commission says making the CRPA permanent is necessary to diversify restructuring options suited to the situations of corporations.
There are broadly two ways to restructure insolvent corporations: workouts and corporate rehabilitation proceedings (formerly court receivership). Workouts cover only financial claims, while corporate rehabilitation proceedings cover all claims, including trade payables. Because only financial creditors take part in workouts, they tend to be shorter in duration and allow for faster liquidity support.
The Financial Services Commission (FSC) submitted a reform plan to the National Assembly to make the CRPA permanent. The plan includes automatically initiating a workout when a corporation applies to the court for a hybrid restructuring. A hybrid restructuring is a system in which a workout is attempted first, and if it fails, the corporation proceeds to rehabilitation.
The plan also includes expanding and reorganizing OnGieop, an online platform for corporate support operated by Korea Asset Management Corporation (KAMCO), into a comprehensive information platform for corporate restructuring. It also contains a measure to guide corporations designated for restructuring—those that receive low ratings in the annual corporate credit risk assessment conducted by the financial authorities—on available restructuring systems and programs. The Financial Services Commission (FSC) also plans to develop a joint counseling manual for policy finance institutions to support restructuring corporations.
To make the CRPA permanent, it must overcome opposition from the Ministry of Justice. Each time the CRPA was re-extended, clashes recurred between the Financial Services Commission (FSC) and the Ministry of Justice. The Ministry of Justice has opposed extending the CRPA, saying the workout system poses significant constitutional issues by infringing on the property rights of some creditor financial institutions. In the 2023 re-extension, opposition from the Ministry of Justice pushed revision work past the sunset deadline.
A National Assembly official said, "Korea's corporate restructuring regime has developed in a dual structure of the public domain of the courts and the private domain led by creditor banks," and added, "As the CRPA's term is set to expire, discussions are expected on extending its term or making it permanent."