Under the current Debtor Rehabilitation and Bankruptcy Act (“Debtor Rehabilitation Act”), even if a debtor’s debt is reduced or exempted when a rehabilitation plan is approved, this does not affect the debt of a guarantor who jointly bears certain obligations with such debtor (“Joint Guarantor”) (Debtor Rehabilitation Act, §250(2)). In many cases a corporate representative of a company becomes a Joint Guarantor, and under the current Debtor Rehabilitation Act, although the debt of a company is reduced or exempted due to the approval of a rehabilitation plan, the corporate representative as the Joint Guarantor will still have to fulfill his/her obligation regarding the debt. This aspect of the law has been continuously pointed out as an obstacle for businessmen to restart or continue their business operations.
Accordingly, congress passed amendments to the Technology Credit Guarantee Fund Act and the Credit Guarantee Fund Act on April 30, 2013, which provides that if a small and medium-sized enterprise (as defined in the Framework Act on Small and Medium Enterprises) (“SME”) with a debt to the Korea Credit Guarantee Fund or the Korea Technology Finance Corporation guaranteed by a Joint Guarantor has its debt reduced or exempted through procedures such as rehabilitation, the obligation to such debt the Joint Guarantor holds is also to be reduced or exempted at the same ratio.
Under the proposed partial amendment to the Technology Credit Guarantee Fund Act and the Credit Guarantee Fund Act, if a debt of a SME debtor is reduced or exempted through an approval of a rehabilitation plan or an exemption decision after declaration of bankruptcy by the court, the obligation of the Joint Guarantor to the debt is also to be reduced pro rata or exempted entirely. The supplementary provisions of the proposed amendments stipulates that the amendments will only apply to Joint Guarantors of SMEs that have received reductions or exemptions subsequent to the approval of their rehabilitation plans or declaration of bankruptcy after the amended law is enacted. The party that proposed this bill anticipates the effect of reduced debt liability on Joint Guarantors of companies and individuals commencing rehabilitation procedures to affect a total of approximately 12,000 people.