Corporate rehabilitation proceedings for the big-box retailer Homeplus Co. have been terminated. It comes 1 year and 4 months after the proceedings began in March last year. The court found it difficult to recognize the feasibility of carrying out the rehabilitation plan through mergers and acquisitions and new financing. As a result, Homeplus Co. is increasingly likely to move toward bankruptcy.
The Fourth Bankruptcy Division of the Seoul Bankruptcy Court (Presiding Judge Jeong Jun-young) decided on the 3rd to terminate Homeplus Co.'s rehabilitation proceedings. The decision came after the court found no feasibility in implementing the revised rehabilitation plan that Homeplus Co. submitted on the 30th of last month.
The bench said, "Although the sale of the Homeplus Express business institutional sector was completed, during the continued operation without a merger or acquisition of the remaining business units, sales declined while public-interest claims such as wages, trade payables debt, and taxes surged." Public-interest claims are claims that take priority over general rehabilitation claims or secured rehabilitation claims in corporations undergoing rehabilitation proceedings.
The bench also found that the funds needed to carry out the rehabilitation plan had not been secured. "In this situation, at least about 200 billion won is needed to implement the rehabilitation plan, but it has not been raised to date," the bench said, explaining that "because there is no feasibility of carrying out the rehabilitation plan, we terminated the rehabilitation proceedings without submitting it to deliberation and a resolution by the stakeholders' meeting."
Homeplus Co. applied for rehabilitation on Mar. 4 last year, and the court decided to commence the proceedings the same day. At the time, the court determined that Homeplus Co.'s liquidation value exceeded its going-concern value and allowed the drafting of a structure-innovation-type rehabilitation plan to transfer all or part of the business.
Homeplus Co. submitted a structure-innovation-type rehabilitation plan on Dec. 29 last year and filed a revised plan on the 30th of last month. The revision included closing unprofitable stores and pursuing business transfers and mergers and acquisitions. It was also reported to include a plan to cut expense by reducing the number of stores from the existing 126 to 67 core stores and downsizing the workforce.
However, the bench found it difficult to recognize the feasibility of carrying out the rehabilitation plan based solely on business restructuring measures. In principle, the deadline for approval of a rehabilitation plan is 1 year from the commencement of the proceedings, and it can be extended by up to 6 months for unavoidable reasons. Although the Homeplus Co. case still had room for an additional extension until September under the statutory deadline, the bench saw no effectiveness in an additional extension.
With the rehabilitation proceedings terminated, the options available to Homeplus Co. are limited. Homeplus Co. can file an immediate appeal within 14 days of the termination decision. If it raises funds within the deadline and files an immediate appeal, there remains a possibility that the bench will overturn the termination decision.
If no immediate appeal is filed, the termination decision becomes final. Corporate rehabilitation proceedings are a system in which, when a corporations facing a management crisis is deemed to have a going-concern value greater than its liquidation value, the court supervises adjustments of debt to seek rehabilitation. If the proceedings are terminated because the plan cannot be carried out, the debtor corporations' options are effectively narrowed to bankruptcy proceedings.
It is also possible to reapply for rehabilitation after the termination decision. However, unless there is a special change in circumstances, such as securing financing or a buyer, the chances of a reapplication being accepted are not high.
The termination of the proceedings has heightened job insecurity as well. As of the end of last month, Homeplus Co. had about 12,000 employees. If Homeplus Co. moves into bankruptcy proceedings, not only they but also 1,000 indirectly employed workers—such as those handling big-box parking, cart management, and cleaning—could lose their jobs. Homeplus Co. employees received their wages later than scheduled in April–May and reportedly did not receive June wages. The Homeplus Co. union has demanded that the employment issue be resolved so employees do not lose their means of livelihood.