[Jeondaegyu's 7 Wins and 8 Losses] What Is Needed in Restructuring Is Not a Cure but a Vaccine

Jeon Dae-gyu, Chief Judge of Seoul Bankruptcy Court

Recently, the Corporate Restructuring Support Center held the 2nd Corporate Restructuring Forum of 2020. Hosted by the Korean Securities Association and sponsored by the Korea Asset Management Corporation (KAMCO) and Korea Growth Investment Corporation, the forum featured presentations and discussions by capital market players under the theme "Execution Methodologies and Cases for Successful Corporate Turnarounds." I also participated as a panelist. Due to the COVID-19 pandemic, the event was conducted as a live online video conference streamed on YouTube.

One of the presenters, drawing on years of experience in restructuring work, shared cases of distressed companies that successfully completed restructuring as well as those that failed, providing an in-depth analysis of the processes, causes of success and failure, and directions for successful restructuring. Another presenter focused on the core objective of corporate restructuring?enhancing corporate value?and meticulously analyzed key tasks for value-up (corporate value enhancement), then proposed concrete methods for increasing corporate value. Moving beyond theoretical analysis, they demonstrated through case studies and included discussions on the utilization and selection criteria of external experts for corporate value enhancement, as well as the recently spotlighted Environmental, Social, and Governance (ESG) factors, offering new insights into methodologies for increasing corporate value.

After the presentations, restructuring experts including myself and business executives with actual restructuring experience engaged in questions and discussions based on their experiences. During this process, there were mentions of skepticism and regrets regarding court-led restructuring, which led to both reflection and the development of new perspectives on restructuring, making the forum meaningful.

The year 2020 can hardly be described as a year of growth either nationally or globally. The International Monetary Fund (IMF) projected the global economic growth rate for 2020 at -4.9%, indicating a deep recession not only in South Korea but worldwide. Participants commonly agreed that corporate restructuring due to COVID-19 is not about growth but survival, and that it must be done immediately and swiftly.

However, the situation is challenging from the corporate perspective. Although the focus of restructuring is rapidly shifting toward capital markets, it is still in its early stages, and capital market players remain insufficient. While the non-performing loan (NPL) market is becoming more active, this makes restructuring through debt adjustment more difficult. Creditors holding NPLs have the sole goal of maximizing debt recovery and show little interest in corporate rehabilitation through restructuring. Since 99% of companies are small and medium-sized enterprises (SMEs), investors (capital market players) prefer large investments in a few companies over many small investments due to operational costs. Consequently, even policy funds are not directed toward SMEs facing difficulties. From the SME perspective, securing new funding is inevitably challenging. Externally, nationalism is rampant to the extent that the end of globalization is a hot topic. Modern Monetary Theory (MMT) is gaining attention (with Japan’s Abenomics and the U.S. quantitative easing as examples), and America First policies, Brexit, and reshoring are emphasized. Although the Regional Comprehensive Economic Partnership (RCEP) has been signed recently, its outcomes remain uncertain due to the power struggle between the U.S. and China (revival of the TPP) and conflicting national interests.

Historically, pandemics have accelerated the future. Just as the Black Death led from the medieval dark ages to the Renaissance golden age, COVID-19, while a crisis, could also be a good opportunity for companies. What do companies need to ensure that the sacrifices made due to COVID-19 are not in vain and to achieve a true leap forward in 2021? The answer is, of course, restructuring. Specifically, proactive and even preventive restructuring. If a company enters restructuring only after facing a crisis, it is already too late. Attempting restructuring in problematic situations may result in uncertain recovery outcomes. Companies must attempt restructuring in advance while operating normally. Only then can restructuring be successfully achieved without significant trial and error. Corporate restructuring requires not a treatment with potential failure but a vaccine that guarantees definite effects without side effects.

Jeon Dae-gyu, Chief Judge, Seoul Bankruptcy Court