Corporate Rehabilitation Procedure
Corporate Rehabilitation, in One Breath
From the petition to the confirmation order — a stage-by-stage map of the eight to ten months of a Korean corporate rehabilitation, organized by phase, expected duration, the documents required, and the practical points that matter.
Based on · Seoul Rehabilitation Court Practice Rules (in force 4 Nov 2024) and Manuals for Examiners, Rehabilitation Trustees and Personal Bankruptcy TrusteesOverview
Full-Procedure Map
From the rehabilitation petition through the confirmation order, and the 5 to 10 years of plan performance that follow. Each station notes the court, custodian, and creditor actions at that phase, alongside the required filings.
Stage by Stage
Eight Stages, in Detail
The texts and timing below follow the Debtor Rehabilitation and Bankruptcy Act (DRBA), the Seoul Rehabilitation Court Practice Rules, and the court's published role manuals. Statutory English follows the Korea Legislation Research Institute (elaw.klri.re.kr).
Petition for Commencement (DRBA Art. 34)
The debtor — or, in certain cases, a qualified creditor — files a petition with the rehabilitation court. The petition must demonstrate the inability to pay debts as they fall due, or the existence of facts likely to result in such inability, together with a feasibility outline for rehabilitation. A court deposit is required.
- Petition and statement of reasons
- Financial statements for the most recent three years
- Schedule of creditors and security interests
- List of officers and shareholders, board resolution
- Receipt of court deposit
Preservation Order and Comprehensive Stay (DRBA Arts. 43–45)
The court issues an order preserving the debtor's assets and a comprehensive stay that halts individual enforcement. From this point onward, the debtor's management of property requires court permission for material transactions; trade payables and lease obligations are addressed under prescribed protocols.
- Stay on existing executions and provisional measures
- Bar on new individual enforcement
- Preservation of corporate assets and operating capital
- Court-permission threshold for material dispositions
Commencement Order (DRBA Art. 49)
If the petition satisfies the statutory requirements, the court issues a commencement order. The order names a custodian (often the existing representative director under Korea's DIP-style framework), a Chief Restructuring Officer (CRO) where appropriate, and an examiner. The first creditor and shareholder data sets are formalized.
- Custodian — typically the existing representative director (debtor-in-possession style)
- CRO — outside oversight where the case calls for it
- Examiner — appraises liquidation and going-concern values
- Creditors' Committee — formed if needed
Creditor List, Claim Filing, and Examination
The custodian prepares the creditor list. Creditors file claims and rehabilitation security rights within the period set by the court. The custodian admits, disputes, or partially disputes each claim. Disputed claims proceed to confirmation litigation under DRBA Articles 170 and 171.
- Creditor list (custodian)
- Claim and security-right filings (creditors)
- Statement of admissions / disputes (custodian)
- Confirmation litigation in disputed cases
Examiner's Report (DRBA Art. 90)
The examiner files a report that values the debtor as a going concern and on liquidation. Where the going-concern value exceeds the liquidation value, rehabilitation remains feasible; otherwise the proceeding ordinarily transitions to bankruptcy. The report is the single most consequential analytical document in the case.
- Liquidation value (DCF, multiple, or asset-based)
- Going-concern value (free cash flow projection)
- Comparison and statement of feasibility
- Liquidation-value guarantee benchmark for the plan
Rehabilitation Plan (DRBA Arts. 193–203)
The custodian submits a plan describing the alteration of rights for each class of claim, the source and schedule of repayment, and any equity-side measures (capital reduction, debt-for-equity swap, third-party investment). The plan must observe the liquidation-value guarantee — no creditor receives less than in liquidation.
- Alteration of rights — rehabilitation claims, rehabilitation security rights, public-interest claims
- Repayment schedule and sources of funds
- Capital reduction / debt-for-equity swap / new investment
- Liquidation-value guarantee narrative
Meeting of Interested Persons — Vote on the Plan (DRBA Art. 237)
The plan is voted on by class. Rehabilitation claims require two-thirds of the value voted in favor; rehabilitation security rights require three-fourths (or four-fifths for liquidation-type plans). If a class fails, the court may still confirm under the cram-down provisions of DRBA Article 244.
- Rehabilitation claims — 2/3 of value voted
- Rehabilitation security rights — 3/4 of value voted (4/5 for liquidation plans)
- Shareholders — majority of voting equity
- Cram-down under DRBA Art. 244
Confirmation Order and Plan Performance (DRBA Arts. 243, 251)
If the plan satisfies the statutory tests — including the liquidation-value guarantee — the court issues a confirmation order. The order has discharge effect: claims not entered on the creditor list or the claim filings are extinguished, subject to the case-law carve-out for claims the custodian could have ascertained (2021Da236111). Plan performance then proceeds for 5 to 10 years, with quarterly performance reports to the court.
- Quarterly performance reports
- Plan amendment for unavoidable reasons (DRBA Art. 282)
- Petition for early termination on completion of performance
- Court-supervised M&A — Stalking Horse or post-confirmation transactions
Roles
Who Does What
Six institutional actors with distinct duties under the DRBA and the Seoul Rehabilitation Court Practice Rules.
Decides on commencement, plan confirmation, supervision of performance, and termination. Issues the preservation order, stay, and order of cram-down where applicable.
Supervises the case on the court's behalf. Reviews custodian reports, monthly performance, and material transactions requiring court permission.
Runs the company during the procedure. Under Korea's debtor-in-possession-style framework the existing representative director is ordinarily appointed. Prepares the creditor list and the rehabilitation plan.
Outside oversight. Where the court appoints a CRO, the custodian's material decisions require CRO endorsement. Common in larger or contested cases.
Independent expert (ordinarily an accounting firm) appointed to value the debtor as a going concern and on liquidation, and to opine on feasibility.
Formed where the case warrants. Represents the creditor body in plan negotiation; entitled to receive material custodian reports and to be heard on key decisions.
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