On 19 May 2016, the National Assembly passed the bill to amend the Debtor Rehabilitation and Bankruptcy Act (“DRBA”). Key amendments include (1) improvements to the early proposed rehabilitation plan submission policy; (2) broadened scope of creditor participation in the proceedings; and (3) stronger protection of creditors with commercial claims. The revised DRBA is expected to enter into force 3 months after promulgation.
I. Improvements to the early rehabilitation plan proposal submission policy
In this version of the amended Act, (a) the creditor whose claim amount is equal to or larger than one half of the total amount of debt owed by the debtor, or (b) the debtor with approval of the foregoing creditor are allowed to make an early submission of the proposed rehabilitation plan. In case of such early submission the party that filed the proposed rehabilitation plan must also file the list of secured, unsecured creditors and shareholders (“creditors list”) before the commencement of the rehabilitation proceeding. Therefore, in case there is an early submission of the proposed rehabilitation plan, the administrator is not required to prepare and submit the creditors list and the creditors may proceed to the subsequent process of filing their claim reports with the bankruptcy court immediately after commencement.
II. Broader scope of participation for rehabilitation creditors
- Changing the way creditor committees are formed and broadening the scope of creditor committees’ authority
The DRBA provides for creditor committees which are constituted under certain conditions to protect the interests of the creditors. With respect to the management of these creditor committees, the revised DRBA provides that (a) when it is not a case of debtor in possession and the court appoints a third party administrator, the creditor committee may nominate a candidate for the administrator; (b) the court must receive comments from the creditor committee when the court appoints an investigator or approves new loans for the debtor.
- Broadening the scope of authority for creditors providing new loans
In order to encourage creditors to provide new loans to the debtor who is undergoing a rehabilitation proceeding, the revised DRBA provides that (i) the creditor who provides new loans have the power to submit their comments regarding important matters in the rehabilitation proceeding and request the administrator to provide materials; (ii) when there is a specific purpose for the new funds, the administrator is required to report their usage to the court; and (iii) the court may provide information regarding the debtor to the person providing the new loans.
III. Reinforcing protection for creditors whose claims arise from commercial trade
The revised DRBA, in order to protect the commercial claim creditors who trade commercially with the debtor and thereby promote effective rehabilitation of the debtor, (a) the claim for payment of commodities that have been supplied to the debtor in the course of continuous and normal business activities within 20 days of the filing an application for commencement of the rehabilitation proceedings shall be categorized as “public interest claims,” which have priority over rehabilitation claims; and (b) the conditions for prioritized payment of rehabilitation claims to creditors who are mid to small size businesses have been relaxed, in order to facilitate payment of such claims before payment of other rehabilitation claims.
IV. Provide for concentrated jurisdiction
The revised DRBA provides that in a corporate rehabilitation proceeding, if the number of creditors is 100 or more and the total amount of debt exceeds the amount set out in the Supreme Court Rules, then the application to commence the rehabilitation / bankruptcy proceeding may be filed with the Seoul Central District Court or the relevant district court, thereby providing legal grounds for concentrated jurisdiction.