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Opinion

Bring back corporate restructuring

Sept 07,2018
Chairman of the Fair Trade Commission Kim Sang-jo, left, and Chairman of the Financial Services Commission Choi Jong-ku, middle, talk with Rep. Chae Yi-bae, the opposition Bareunmirae Party’s acting chairman of the policy committee, at a meeting in the National Assembly on Aug. 22. [YONHAP]
Yi Jung-jae


The Corporate Restructuring Advance Act in Korea goes back 18 years. It was brought to this part of the world as kind of divine aid to bail out Korea Inc. following the Asian financial crisis in late 1997 that sent the country begging for an international bailout to avoid insolvency. It was supposed to be a makeshift institution to rescue salvageable businesses swept up in the tsunami of the liquidity crisis.

There were more familiar bailout establishments: the bankruptcy court and creditor-led voluntary reorganizations. They were too rigid and slow for times of emergency. Little is left after a bankruptcy court is done with its surgical amputations on a company and the giving away of assets to creditors. At the end of the day, the worst-off were workers. Millions of people found themselves out of work. President Kim Dae-jung, a longtime dissident who devoted himself to the poor and socially weak, could not bear the sight upon finally coming to power. This is how a concept known as out-of-court debt restructuring to financiers in London came to be practiced in Korea.

The rigorous slimming programs led by state lenders originally were to last five years. Since it was a new concept, the exact mechanism was blurry. It was designed to salvage mid-sized conglomerates. But it ended up taking bigger patients — Daewoo Group, a household name next only to Samsung, Hyundai, and LG. After the outsized Daewoo was made super-skinny, the workout became a restructuring norm. Some talked about making it a fixture. But a law is a law. The act expired in 2006 as planned. Then it was revived 22 months later. After a brief employment, it was scrapped twice and remains dormant. The government has been campaigning hard to bring the act back. No better program had worked in preventing, coordinating and performing surgical operations to minimize losses for all.

The government once again has its back to the wall. The job front is as bad as the crisis-hit period of 18 years ago. Three out of 10 companies are in the red in terms of cash flow. More than four out of 10 mid or small-sized companies do not earn enough to pay off interest on their debt. Factory lines are coming to a halt. The pipeline for corporate offerings for sale is the largest ever. Chain bankruptcies are being predicted on the supply chains for automaking, shipbuilding and construction. At this rate, the streets could be filled with the homeless and jobless in short order. There is not much time. The bankruptcy court cannot cope with the situation as it mostly specializes with the most critical or near-dead companies. Workouts focus on keeping the losses to a minimum and recovering as many assets and people as possible. Under workouts, layoffs averaged 17.3 percent, whereas the ratio hit 39.2 percent in court receiverships.

But the National Assembly nixed the resurrection of the act. An opposition lawmaker from a civic activist group led the veto against a bill that passed a standing committee on state affairs in the legislative and judiciary committee. His argument was that the act would strengthen state control over the private sector. The legislature also rejected deregulation bills personally pitched by President Moon Jae-in to vitalize internet banking and telemedicine services under the pressure of civic groups. Since the liberal government and ruling party cannot tame the civic groups, it raises doubts that they can ever achieve innovative growth or job increases.

Still, the president and ruling party should not give up. They must do whatever possible to combat the job crisis. The corporate restructuring act must be revived to strengthen the corporate sector before more people lose their jobs. The president must try to persuade each individual if necessary. Institutionalizing the system permanently could be an idea to avoid the further hassle of seeking legislative approval over and over again.

JoongAng Ilbo, Sept. 6, Page 30
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