Homeplus Co. halted operations at its headquarters and all 67 stores starting on the 13th. The operating cash has run dry, making even facility maintenance and management difficult. With the bankruptcy deadline looming, the labor union made a last-ditch effort to persuade majority shareholder MBK Partners, but no breakthrough has emerged.
According to the industry on the 15th, Homeplus Co. is increasingly likely to enter a "connected bankruptcy" process after it became virtually impossible to raise 200 billion won in operating funds, which the Seoul Bankruptcy Court required as a condition for rehabilitation by the 20th. Connected bankruptcy means the court bundles the termination of rehabilitation and the bankruptcy declaration into a single case and handles them together. Unlike ordinary bankruptcy, in which creditors or the company must newly file for bankruptcy after the rehabilitation procedure fully ends, the order of repayment set by the court during the rehabilitation period is carried over as is.
◇ Why move to connected bankruptcy
While rehabilitation is underway, creditors cannot dun for debts or seize an asset. The court also sets the order of repayment by claim. But if termination of rehabilitation is confirmed on the 20th and bankruptcy is handled separately, this shield disappears. Whoever files first or seizes first takes priority, which can cause major confusion.
Connected bankruptcy removes this gap. It carries over the repayment order set during rehabilitation, and a court-appointed bankruptcy trustee sells the asset and distributes proceeds in that order. An industry official said, "Given the sheer size of the claims and the need to reset priorities, ordinary bankruptcy would inevitably lead to confusion," adding, "It is highly likely the court will, on its own authority, declare connected bankruptcy."
◇ Who gets paid first
When connected bankruptcy is declared, the asset is pooled into the bankruptcy estate. The order of disbursements is set. First come the expenses to operate the estate and dispose of the asset. Next are employees' three months of wages and three years of severance, national taxes and local government tax, and the four major social insurance premiums.
As confirmed by a full inspection on the 10th, the government said unpaid June wages at Homeplus Co. total 33.3 billion won. About 11,400 employees are affected. The government will provide substitute payments of up to 21 million won per person to workers harmed by unpaid wages and, for those needing urgent livelihood support, will offer low-interest livelihood loans at 1.5% per year up to a limit of 10 million won per person.
Next are public-interest claims. These are claims that arose after the rehabilitation procedure began, such as payments owed to partner firms that supplied goods relying on court protection. According to data reported to the Homeplus Co. creditors' council, as of the end of May, public-interest claims totaled 1.0999 trillion won. They increased by 767.1 billion won in one year and two months from 332.8 billion won at the start of rehabilitation in March last year. Trade claims such as unpaid supplier payments are the largest at 794 billion won, followed by 82 billion won in taxes and public dues, and 161.4 billion won in debtor-in-possession (DIP) emergency operating funds.
Debts that arose before the start of the rehabilitation procedure are classified as rehabilitation claims and are pushed back in priority. When the creditor list was submitted in April last year, rehabilitation claims stood at 2.6691 trillion won (2,894 cases), and rehabilitation secured claims were 26.9 billion won (4 cases). Bank lending, corporate commercial paper, and lease deposit return claims are included here.
Store owners of food courts, eyewear shops, and clothing stores that paid lease deposits to move into Homeplus Co. malls and did business also fall into this lower-priority group. Store owners at the Seongseo branch of Homeplus Co. in Daegu held a press conference in front of the Sanggyeok government complex at Daegu City Hall on the 10th, demanding business succession rather than closure, reflecting these concerns.
Current government support is focused on partner firms. The Small Enterprise and Market Service will apply a preferred interest rate and raise the cap for emergency management stabilization funds for partner firms that have supplied Homeplus Co. The Korea Credit Guarantee Fund (KODIT) added small and midsize corporations harmed by the termination of the rehabilitation procedure to the targets of its crisis-response special guarantees, and banks will offer up to 500 million won in emergency working capital loans per partner firm.
◇ Meritz holds the key
The issue is the asset to be distributed. Sixty-two Homeplus Co. stores are held in collateral trust by Meritz Financial Group. That is about 99% of the company's asset. A collateral trust allows the creditor to decide 100% when, at what price, and under what terms to dispose of the collateral. Even if bankruptcy is declared, the bankruptcy trustee cannot touch it, and the trustee company disposes of it through public auction. Only if money remains after the secured claim is fully recovered does it flow into the bankruptcy estate.
This is where creditors' fates diverge. The asset value Meritz holds as collateral is around 1.5 trillion won. A quick auction would speed recovery, but there may be nothing left for creditors down the line. An industry official said, "If Meritz disposes of assets rashly and inflicts large losses on lower-priority creditors, the social burden could be heavy, so it will not be able to act unilaterally," adding, "It will likely proceed in consultation with the bankruptcy trustee."
There is precedent for the court conducting connected bankruptcy to protect creditors during the bankruptcy of the online shopping platform WeMakePrice. Attorney Hong Hyeon-pil, a bankruptcy trustee with 20 years of experience, said, "WeMakePrice had little secured asset and mostly trade claims, but Homeplus Co. has real estate tied up in trust and many workers and partner firms, so liquidation will be far more complicated."
There are also calls for government-level measures to prepare for mass layoffs. Jung Yeon-seung, a business administration professor at Dankook University, said, "Help employees move smoothly to other retail companies, and provide training programs for those seeking to switch fields," adding, "Through a special program that offers financial support to employees facing temporary hardship, the government should help them make as soft a landing as possible."