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Newsletter | July 2016, Issue 2
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CORPORATE
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National Assembly Passes a New Corporate Restructuring Promotion Act with Significant Impact to Corporate Restructuring Proceedings
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A new Corporate Restructuring Promotion Act (the “New CRPA”) was passed by the National Assembly on March 2, 2016, and on the same date, it became immediately effective.
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The New CRPA succeeds the previous law of the same name that expired and was repealed as of December 31, 2015 (the “Old CRPA”).
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Expected Impact
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The New CRPA includes many provisions that are expected to have significant impact on the framework and substance of corporate restructuring proceedings that existed under the Old CRPA. In particular, we would like to draw your attention to the following changes.
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1. Expansion of Scope: Type of Creditors Subject to the CRPA Proceeding
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The New CRPA expands the scope of creditors subject to the workout proceeding under the Corporate Restructuring Promotion Act (the “CRPA”).
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Under the Old CRPA, only Korean domestic financial institutions (including Korean branches of foreign financial institutions, and certain domestic non-financial institutions related to the financial sector) were subject to the workout proceeding.
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However, under the New CRPA, any creditor with a financial claim against the debtor company (including foreign creditors holding financial claims, and non-financial institutions holding claims that may be classified as financial claims), will be subject to the workout proceeding.
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Additionally, there is an addendum to the New CRPA, which provides that the workout proceeding under the new law does not apply to financial claims held by a “non-creditor financial institution” (as defined under the Old CRPA) if the financial claims arose prior to the effective date of the New CRPA. The New CRPA will apply in the case of financial claims that are renewed or rolled over after the effective date of the New CRPA.
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Suggestion: Given the expansion of the scope of creditors subject to the workout proceeding under the CRPA, it would be advisable for any person or entity that owns bonds issued by Korean companies, or for any person or entity that intends to enter into a transaction to acquire bonds issued by Korean companies, to carefully review whether the relevant bonds will constitute financial claims under the New CRPA (which would result in such person or entity becoming a “creditor”).
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2. Expansion of Scope of Debtors Subject to the CRPA Proceeding
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In addition, the New CRPA abolished the minimum credit threshold of KRW 50 billion, which was required in order to apply the workout proceeding under the Old CRPA.
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Under the New CRPA, any company, irrespective of its total outstanding credit amount, may enjoy the benefits of workout proceeding.
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As a result, the scope of CRPA-governed debtors has been substantially expanded, and now includes all companies except for certain companies that have been expressly excluded as CRPA-governed debtors under the New CRPA. These exceptions include governmental and public organizations, financial companies prescribed by the Presidential Decree, and companies incorporated under foreign laws.
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Back to Main Page
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If you have any questions regarding this article, please contact below:
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For more information, please visit our website:
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