Corporate Bankruptcy Procedure
Corporate Bankruptcy — The Other Way Forward
When rehabilitation is not feasible, bankruptcy is the orderly close. Trustee appointment, asset realization, and distribution to creditors in statutory priority — under the Debtor Rehabilitation and Bankruptcy Act (DRBA) and the Seoul Rehabilitation Court Practice Rules.
Based on · DRBA Part III · Seoul Rehabilitation Court Practice Rules · Trustee ManualsRehabilitation vs Bankruptcy
Two Procedures, Two Logics
The choice is governed by feasibility — whether the going-concern value exceeds the liquidation value, and whether the company can be revived as an ongoing business.
Corporate Rehabilitation
- Premise
- Going-concern value exceeds liquidation value
- Operations
- The company continues; existing management ordinarily retained as custodian
- Outcome
- Plan confirmation; 5–10 years of repayment
- Discharge
- Unfiled claims discharged on confirmation (subject to 2021Da236111 carve-out)
- Cram-Down
- Available under DRBA Art. 244
Corporate Bankruptcy
- Premise
- Liquidation value equals or exceeds going-concern value, or rehabilitation has failed
- Operations
- The company stops; a trustee takes possession of assets
- Outcome
- Realization of estate and distribution in statutory priority; corporate personality extinguished
- Discharge
- Not applicable to corporations (relevant to individuals only)
- Cram-Down
- N/A — there is no plan vote
Stage by Stage
Six Stages of Corporate Bankruptcy
Bankruptcy Petition (DRBA Art. 294)
The debtor, a creditor, or in some cases the public prosecutor files a petition with the rehabilitation court. The petition must demonstrate inability to pay debts as they fall due, or insolvency. A court deposit is required to cover trustee fees and procedural costs.
- Petition and statement of reasons
- Three years of financial statements
- Schedule of creditors and security interests
- List of officers and shareholders, dissolution / board resolution
- Court deposit (typically tied to estimated estate size)
Adjudication of Bankruptcy and Trustee Appointment (DRBA Arts. 305, 355)
If the petition is well founded, the court adjudicates the debtor bankrupt and appoints a trustee. The trustee takes immediate possession of the debtor's assets, books, and records. Director and shareholder authority over the property is terminated.
- Trustee's exclusive right to manage and dispose of estate assets
- Automatic stay of individual enforcement
- Crystallization of claims as of the adjudication date
- Appointment of a creditors' committee where appropriate
Claim Filing and Examination (DRBA Arts. 446–462)
The trustee circulates the schedule of creditors. Creditors file claims within the period set by the court; the trustee admits or disputes each. Disputed claims proceed to confirmation litigation. The schedule, once confirmed, has the effect of a final and conclusive judgment.
- Estate claims — costs of administration, certain post-petition obligations
- Preferential claims — wages, taxes within statutory limits
- General bankruptcy claims
- Subordinated claims — penalties, interest after adjudication
Realization of the Estate
The trustee converts non-cash assets into cash — by public auction, private sale, or court-approved transfers. Where the business has residual going-concern elements, sale as a unit may be pursued under DRBA Article 492. Avoidance actions under DRBA Article 391 et seq. recover preferential or fraudulent transfers.
- Public auction of real property and major assets
- Court-approved private sale where higher value is realized
- Sale of business or going-concern unit under DRBA Art. 492
- Avoidance actions to recover preferential or fraudulent transfers
Distribution (DRBA Arts. 505–518)
Once the estate is sufficiently realized, the trustee files a distribution proposal. Distribution follows the statutory priority pyramid: estate claims first, then preferential claims (within statutory caps), then general bankruptcy claims pro rata, with subordinated claims last. Multiple interim distributions are common in larger estates.
- 1st · Estate claims — administration costs, certain post-petition obligations
- 2nd · Preferential claims — wages and severance up to statutory caps, taxes within limits
- 3rd · General bankruptcy claims — pro rata
- 4th · Subordinated claims — post-adjudication interest, penalties
Termination (DRBA Arts. 530–531)
Once distribution is complete or the estate is exhausted, the trustee files a final report. The court issues a termination order. The corporate entity is then dissolved through commercial-registry proceedings, and the trustee's duties end.
Distribution Priority
The Priority Pyramid
In bankruptcy, who gets paid first is the single most determinative question for any creditor. The structure below mirrors DRBA Articles 473, 505 and surrounding provisions.
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