[Exclusive] Bankruptcy Wave Triggered by COVID-19... Supreme Court to Improve Handling of 'Insolvency Cases'

Establishment of Detailed Dosan Incident DB... "With Unified Standards, We Will Reduce Burden Period and Support Recovery"

[Asia Economy Reporter Baek Kyunghwan] As the number of rehabilitation and bankruptcy cases increases due to the prolonged COVID-19 pandemic and the resulting economic recession, the Supreme Court has stepped up its efforts. It has decided to establish a new insolvency case processing system to reduce the burden period on debtors and increase their chances of economic recovery. In the mid to long term, it will also play a supportive role in the National Assembly’s insolvency-related policy-making process.

According to the legal community on the 12th, the Supreme Court recently began a policy study to build a detailed database (DB) on insolvency cases to identify issues in the court’s processing procedures and establish unified standards nationwide. A Supreme Court official explained, “There is an increasing trend in rehabilitation and bankruptcy cases amid rapidly changing domestic and international economic conditions, including the domestic economic crisis caused by COVID-19. In response, we intend to conduct empirical research reflecting social demands for prompt case handling and fair and efficient procedures.”

Looking at actual court statistics, the total number of personal bankruptcy filings received by courts nationwide last year was 50,379, an increase of 4,737 cases from 45,642 in 2019. This is the highest figure in the past five years, with numbers remaining in the mid-40,000s annually since 2016, when there were 50,288 cases. Corporate bankruptcy filings last year also rose by 138 cases to a total of 1,069 compared to 2019. This is the first time corporate bankruptcy filings have exceeded 1,000 since the courts began publishing statistics.

The trend has continued this year. The repeated resurgence of COVID-19 and strengthened social distancing measures, including business restrictions, are believed to have contributed to this. Personal bankruptcy filings totaled 7,404 in January and February, about 400 cases more than the 6,967 cases in the same period last year.

However, despite the increase in bankruptcy filings, there have been ongoing criticisms that debtors face excessive or unnecessary burdens due to the complex rehabilitation and bankruptcy processes. This is why the Supreme Court’s Rehabilitation and Bankruptcy Committee recommended last year that specific inspections and improvement plans be prepared for the insolvency case processing procedures.

Accordingly, the Supreme Court has decided to start by reviewing the current status, outcomes, and processing periods of rehabilitation and bankruptcy cases. It aims to build detailed data on individual debtors and marginal companies to establish unified case processing standards nationwide.

Internally, there is discussion about subdividing the insolvency case reception and processing statistics currently held by the courts by industry, size, debt amount, liquidation value, and other factors. The goal is to establish specific standards suitable for each insolvency procedure and to enable prompt processing tailored to the situation going forward.

There is also talk of simplifying and clarifying the documents required when debtors apply for personal bankruptcy to improve the efficiency of insolvency procedures. For example, if a debtor who should apply for personal bankruptcy applies for personal rehabilitation instead, the system would make it easier to switch to personal bankruptcy. This aims to simplify the reception and review process and apply the appropriate personal insolvency procedure according to the debtor’s circumstances.

A Supreme Court official said, “Legislative and administrative bodies, especially financial authorities and policy financial institutions, will analyze the disclosed detailed data to develop efficient improvement plans. This work will also be used as basic data for related policy formulation and will provide practical help in reducing the burden on debtors.”