On 16 October 2018, a new Corporate Restructuring Promotion Act("CRPA") was promulgated, with immediate effect. The CRPA was first enacted in 2001 as a response to the Financial Crisis that began in 1997, causing hundreds of businesses in Korea to close down. Concerned that bankruptcies of larger companies may lead to bankruptcies of lender financial institutions, the CRPA was enacted as a temporary measure to facilitate speedy restructuring of larger businesses, while allowing the businesses to continue operation under supervision of creditor financial institutions. Since then, the CRPA had expired and was reenacted several times upon demand from interested parties for a more flexible but regulated out-of-court restructuring regime.
The latest CRPA enacted before the current CRPA ("2016 CRPA") expired as of 30 June 2018 amidst discussions in favor of and against permanent legislation regulating out-of-court restructuring. Since then, three different bills regarding a new & revised CRPA was submitted to the National Assembly, in addition to three other bills on CRPA that had been introduced before expiry of the 2016 CRPA. These bills were integrated and modified into a new bill which was introduced to the plenary session by the Legislation and Judiciary Committee. This new bill was passed by the National Assembly on 20 September 2018 and promulgated on 16 October 2018 with immediate effect.
The new CRPA is identical to the 2016 CRPA but for the following changes:
- According to the CRPA, during joint administration for MSMEs (Micro, Small and Medium Enterprises), the main creditor bank is required to review the performance of the normalization plan by the debtor company every quarter and disclose such results at least once a year. The new CRPA provides exceptions to this disclosure obligation by allowing the main creditor bank to choose not to disclose the results of the performance review, if (i) the information is (a) a business secret, or (b) there is a possibility that disclosure may lead to asset depreciation or otherwise hinder normalization of the company; or (ii) if the relevant MSME is not required to submit an annual business report under Article 159(1) of the Financial Investment Services and Capital Markets Act. Also with respect to the requirement for the main creditor bank to conduct an overall assessment of the joint administration procedure after 3 years from commencement of the procedure, the new CRPA allows some exceptions in case of MSMEs to conduct the assessment at a different time or decide not to disclose the results of the assessment subject to the non-disclosure requirements mentioned above.
- With respect to the creditor financial institutions, their officers, and employees, the new CRPA now includes an "exemption of liability clause," stipulating that "When creditor financial institutions, their officers, and employees proactively perform their duties under the CRPA to restructure the company without intent or gross negligence, they shall be exempt from liability for the result thereof, under finance-related laws and regulations such as the CRPA, Board of Audit and Inspection Act, Banking Act, etc." The exemption does not apply, however, in cases where there are (i) violations of relevant laws and regulations; (ii) insufficient collection and/or review of necessary information; (iii) corruption; or (iv) personal interests.
The CRPA Enforcement Decree and the Regulation on Financial Institutions to Promote Corporate Restructuring, which would provide necessary details for law enforcement, have yet to take effect. However, the pre-announcements indicate that substantive changes will not be made to these secondary legislation.
Notably, the National Assembly added an opinion directed to the Financial Supervisory Committee ("FSC") to evaluate the corporate restructuring policies for their accomplishments and effectiveness, and after gathering the opinions of the court, relevant institutions and professionals, submit a report to the relevant standing committee within the National Assembly on the overall operation of the corporate restructuring policies, including whether the CRPA should be unified with the Debtor Rehabilitation and Bankruptcy Act or be converted to a separate permanent legislation. The FSC is required to prepare and submit this report before the end of term for the current National Assembly, which is in 2020.