“Workout” in Korea is generally accepted as an out-of-court corporate restructuring process aimed at speedy business normalization of financially distressed companies by cooperation  between  the  debtor  company  and  its  creditors. Since  the  former Corporate Restructuring Promotion Act」(“old CRPA”), which was the legal basis for this workout process, expired at the end of 2015, a new「Corporate Restructuring Promotion Act」(“new CRPA”) has been enacted as of 18 March 2016 in order to provide speedy, continuous restructuring for indebted companies.

The most notable feature of the new CRPA is that the scope of applicable creditors have been extended from financial institution creditors located in Korea to all financial creditors, regardless of location. Key features of the new CRPA are as follows:

  1. Extending the scope of creditors who may participate in the workout to “all” “financial creditors”

The old CRPA provided that the creditors who can participate in the workout process are limited to creditor financial institutions located in Korea (including the Korean branch offices of foreign financial institutions). Since it had been criticized that such limited scope of applicable creditors raised an issue of fairness, the new CRPA extended the scope of creditors to, with certain exceptions, all financial creditors, regardless of their location. As a result, in principle, foreign creditor financial institutions, pensions, funds and even individual bondholders who did not participate in the workout process under the old CRPA, have now become mandatory participants to the workout process.

  1. Extending the scope of applicable companies to “all” “companies”

The old CRPA was applicable to companies with KRW 50 billion or more financial debt. The new CRPA, however, is applicable to all companies by principle, with an exception of public institutions and companies with less than KRW 5 billion in financial debt.

  1. Reinforcement of the Creditor Protection Process

The new CRPA also provides a wider scope of cases in which a dissenting creditor may exercise its right to request a purchase of claims. Furthermore, in order to protect the interests of financial creditors with a relatively small amount of financial claims, when a major creditor owns 75% or more of the entire amount of voting rights, the quorum for passing a resolution at the creditors meeting would be 40% of the total number of financial creditors, including the major creditor.

The new CRPA is expected to be a useful tool for out-of-court restructuring in the current Korean market where marginal businesses are on the rise, especially in the shipbuilding and shipping industries.