Homeplus Co. submitted a revised restructuring recovery plan to shut down operations at 37 noncore stores and focus on 67 core stores, but the court did not put it to a creditor vote. The intent is that even if a company under rehabilitation submits a tough self‑help plan, it cannot proceed to a meeting of interested parties unless it specifically substantiates the preconditions for carrying out the plan, such as securing operating funds.
The 4th Division of the Seoul Bankruptcy Court (Chief Judge Jeong Jun-young, Presiding Judge Park So-young) on the 3rd terminated the rehabilitation proceedings for Homeplus Co.. After submitting a restructuring recovery plan in Dec. last year, Homeplus Co. filed a revision on the 30th of last month, but the court did not put it to review and resolution at a meeting of interested parties. The court viewed that an unperformable rehabilitation plan need not be put to a meeting of interested parties, and when a plan is not fit to be presented to such a meeting, the court must ex officio terminate the rehabilitation proceedings.
◇ 37-store consolidation plan also premised on additional funds
The Homeplus Co. revision called for halting operations at 37 noncore stores, including large discount stores with operating losses, and concentrating operations on 67 core stores that are profitable or serve as regional hubs. It also included a plan to raise repayment and operating funds through operating proceeds and asset sales, and to pursue a transfer of operations after plan approval.
However, the court looked to feasibility over the severity of restructuring. The revision was premised on raising at least 200 billion won in additional external funds beyond the 120.6 billion won secured through the transfer of the Homeplus Express business unit. Homeplus Co. said it was pursuing additional DIP financing, but the court found that no specific and realistic substantiating materials had been submitted. DIP financing is operating capital newly borrowed to allow a company in rehabilitation proceedings to continue operating.
Homeplus Co.'s original rehabilitation plan assumed a new 300 billion won DIP loan and a roughly 300 billion won sale of the Homeplus Express business unit. Funds actually secured totaled 220.6 billion won, including a 100 billion won DIP loan from MBK Partners and 120.6 billion won in consideration for the transfer of operations to NS Shopping, the operator of NS Home Shopping.
◇ "Documents you can trust, not words, are needed"
An attorney at a major law firm with bankruptcy trustee experience said, "The court had been extending the deadline for plan approval while watching Homeplus Co.'s funding prospects, but it now appears to be signaling that explanations asserting feasibility in words alone are no longer acceptable." The attorney said, "It is to the effect that the court wants documents indicating a very high likelihood the money will actually come in, such as a commitment letter from a financial institution or investor pledging to raise 200 billion won."
The attorney explained, "At the application stage, a letter of intent to invest may suffice to try moving the procedure forward, but at the approval stage, it has to be to the point that the court or a third party can view the fund execution as nearly certain," adding, "Substantive materials are needed, such as a commitment from a credible investor, payment of a deposit, or escrow."
Attorney Park Kyu-hee of the law firm Barun gave the same explanation. Park said, "Even if a company under rehabilitation submits a tough restructuring plan and the rehabilitation plan is fairly structured, if the court determines that funding plans or future operating profits are unrealizable in practice and thus do not assure implementation of the debt repayment plan, it can forgo a meeting of interested parties and terminate the rehabilitation proceedings."
Park said, "For the feasibility of a DIP financing or external funding plan to be recognized, the funder, amount, and specific timing and terms must be presented, and binding documents such as an investment commitment letter or loan commitment letter must be submitted," adding, "For external funding via M&A, requirements can go beyond a simple letter of intent to include prepayment of the acquisition price or a binding commitment equivalent to it."
◇ Heavier burden to carry out the plan if administrative expense claims grow
Rising administrative expense claims also lay behind the revision not advancing to a vote. The Seoul Bankruptcy Court said that although the sale of the Homeplus Express business unit closed, during continued operations without an M&A for the remaining business unit, sales fell while administrative expense claims—such as wages, payables for goods, and taxes—surged. Administrative expense claims are claims paid ahead of general rehabilitation claims or secured rehabilitation claims.
Park said, "In corporations that must keep operating, such as large discount stores, administrative expense claims such as wages, taxes, and payments to suppliers continue to arise during rehabilitation," adding, "The larger the administrative expense claims, the smaller the resources to repay rehabilitation claims, and if the situation worsens, liquidation can become more beneficial to creditor recovery rates." Park added, "Holders of administrative expense claims can carry out compulsory enforcement at any time, so as the scale grows, smooth operations become harder, and it inevitably weighs negatively in assessing the feasibility of carrying out the rehabilitation plan."
Samil PricewaterhouseCoopers, the court-appointed investigator, last June assessed Homeplus Co.'s going-concern value at about 2.5058 trillion won and its liquidation value at about 3.6816 trillion won. The point was that without external funding or an inflow of funds through M&A before plan approval, achieving the business plan as a going concern would be difficult.
The decision shows that in a company's self‑help plan under rehabilitation, what matters is not the severity of restructuring but the realistic preconditions for executing it. Even if a self‑help plan includes store consolidation, business unit sales, and M&A plans, if the possibility of raising new operating funds is not substantiated, it is hard to clear the key threshold for maintaining rehabilitation proceedings. Homeplus Co. can file an immediate appeal within 14 days against the termination decision.