Corporate & General Rehabilitation, Corporate Bankruptcy

General Rehabilitation is for individuals who cannot use Individual Rehabilitation because their unsecured debt exceeds KRW 500 million or their secured debt exceeds KRW 1 billion, either ceiling being enough to rule the simpler procedure out. A rehabilitation plan is drawn up within what can be repaid out of cash projected from after-tax operating profit, or out of income net of living expenses, and the debt is then repaid in instalments under court supervision with creditor approval. The repayment term is set within a maximum of ten years as a matter of principle, and what remains after the plan has been performed is dealt with according to the plan's terms.We start by splitting the debt into secured and unsecured to test both ceilings, then examines whether the earnings structure of the business, taken as a going concern, can carry a plan at all. Confirmation depends on a creditors' vote and on the court, so rather than assessing the odds we begin by explaining what the voting thresholds require.

General Rehabilitation comes into view when either of the Individual Rehabilitation ceilings, KRW 500 million unsecured, KRW 1 billion secured, has been passed, closing off the simpler procedure. It is not confined to any one occupation. Licensed practitioners such as doctors, oriental medicine doctors, accountants, tax accountants and architects can use it, and so can sole proprietors, civil servants and salaried employees; any natural person under the Civil Act is eligible. Debt tends to reach this scale through business equipment, lease deposits, finance leases and guarantee obligations, all of which push past the Individual Rehabilitation ceilings quickly. We classify the character of the debt first. Whether the case is dominated by secured debt or by accumulated unsecured debt changes both the design of the plan and which class of creditors has to be persuaded.

Applicants for General Rehabilitation fall into two groups by the character of their income. Business income earners include sole proprietors, doctors, oriental medicine doctors, pharmacists, attorneys and entertainers, anyone whose income arises from a business or practice. Salaried income earners include civil servants, teachers, school staff, salaried physicians, financial institution employees, employees of listed companies, and administrators. The distinction is not a formality; it determines what has to be prepared. A business income earner needs materials showing the profitability and going-concern value of the enterprise: balance sheets, profit and loss statements, projected profit and loss statements. A salaried earner need not file documents from that list that do not apply, and submitting only the relevant records to the court is sufficient. We fix the character of the income in the first consultation and then hand over only the document list that actually applies.

The two procedures diverge at four points. First, Individual Rehabilitation is capped at KRW 500 million unsecured and KRW 1 billion secured, while General Rehabilitation has no ceiling. Second, Individual Rehabilitation requires no creditors' vote, whereas creditor approval is a condition of confirmation in General Rehabilitation. Third, Individual Rehabilitation decides discharge only after the confirmed plan has been performed, while in General Rehabilitation confirmation itself alters the creditors' rights. Fourth, security interests are treated differently: in Individual Rehabilitation an auction to enforce a security interest proceeds even after confirmation, whereas in General Rehabilitation security interests can also be modified by the plan and the auction can be cancelled. Where a mortgaged property has to be preserved, this fourth difference often decides which procedure to use. We put the comparison on the table early so the basis for the choice is shared from the outset.

A rehabilitation plan submitted on the debtor's behalf must be resolved at a meeting of interested parties, or passed by written resolution, before the court will confirm it. Drafting the plan is the legal representative's task. The meeting proceeds by classes divided according to the character of the claims, and the court determines the classification. For an individual debtor the usual split is between secured rehabilitation creditors and unsecured rehabilitation creditors. Passing the plan requires consent from holders of at least three quarters of the voting rights by value in the secured class, and at least two thirds by value in the unsecured class. General Rehabilitation is therefore a procedure that advances only if the plan persuades creditors. We check the distribution of voting rights across the classes while the plan is still being drafted, and design the repayment terms around whose consent will be decisive. Whether the plan passes rests with the creditors, and we do not guarantee that outcome.

Once a preservation order is issued in General Rehabilitation, the right to conduct the debtor's business and to manage and dispose of the estate vests exclusively in the administrator, who is, as a rule, the debtor themselves. That is what makes it possible to keep trading while the procedure runs. The same order bars interested parties, creditors above all, from exercising their rights individually. Compulsory execution, provisional attachment, provisional disposition and auctions to enforce security interests against the debtor's property are suspended or prohibited, and proceedings already suspended can be cancelled where the conditions are met. Secured creditors' rights, too, can be modified by the plan, and enforcement of security can be restrained while the procedure is pending. A preservation order also takes the debtor outside the scope of penalties under the Illegal Check Control Act and can prevent a current-account suspension arising from issued bills. We map the enforcement actions under way and the payment calendar first, then decide which orders to seek and in what order.

General Rehabilitation is considered as a way of containing a crisis in situations of the following kind. A clinic whose national health insurance receivables have been attached, and so cannot fund its operations, is one typical case; so is a practice struggling under lease and other secured debt service. It also covers salaried earners and business owners whose livelihood has been disrupted by an attachment and assignment order or a collection order; premises where enforcement or other litigation is obstructing normal trading; and businesses squeezed by excessive financing costs. The same applies where sales continue and the enterprise retains going-concern value, yet capital expenditure or external factors have put it at risk of failure, and where an attempt at expansion or a new venture has failed and left the owner in financial difficulty. We identify which of these describes the client's position, then examine whether the most pressing enforcement can be stopped first.