Struggling Companies Breathe Sigh of Relief... Ruling and Opposition Agree to Extend Special Act on Corporate Restructuring Until 2026 (Comprehensive)

On the 28th, the Subcommittee of the Political Affairs Committee Passed the 'Corporate Restructuring Promotion Act'

The ruling and opposition parties handled the amendment to the "Corporate Restructuring Promotion Act (CSPA)" on the 28th at the National Assembly's Legislation and Judiciary Committee Subcommittee. This amendment aims to detect early signs of corporate insolvency before bankruptcy and support rapid normalization through autonomous consultations among creditors. As the business environment rapidly deteriorates due to interest rate hikes and rising raw material prices, leading to an increase in marginal companies unable to even pay interest, it appears that the call to promptly reinstate the CSPA, which expired on the 15th of last month, was supported.

On this day, the National Assembly's Legislation and Judiciary Committee held the first bill review subcommittee and approved the "Partial Amendment to the Corporate Restructuring Promotion Act." The CSPA provides the legal basis for corporate "workouts." It was enacted as a temporary law in 2001 but has been operated six times since through re-enactments. If more than 75% of creditors agree, the workout system allows for corporate debt restructuring and new funding support.

The act is gaining attention as it plays a role as a system to support corporate re-leaps by detecting early signs of insolvency before bankruptcy and supporting rapid normalization through autonomous consultations among creditors, which added weight to its likelihood of passage on this day.

According to the Bank of Korea, the number of marginal companies increased by 14.8% from 3,111 in 2017 to 3,572 in 2021. The number of small and medium-sized enterprises showing signs of insolvency, based on annual credit risk assessments conducted by banks on credit-granting companies, rose by 26 to 183 as of last year compared to the previous year. Yoon Chang-hyun, a member of the People Power Party who proposed the amendment, explained, "While the number of companies filing for rehabilitation has decreased since COVID-19, the number of companies filing for bankruptcy has significantly increased. This suggests that companies are enduring as much as possible through government measures such as maturity extensions and repayment deferrals instead of choosing rehabilitation, then heading straight to bankruptcy. Therefore, there is a growing voice that the workout-based re-leap support system should play a more active role to prevent many companies showing signs of insolvency from simultaneously going bankrupt."

On the same day, Yoon Jae-ok, floor leader of the People Power Party, proposed a "2+2 Livelihood Bill Promotion Council," involving policy chiefs and deputy floor leaders from both parties, at a floor strategy meeting held at the National Assembly, bringing up the CSPA as one of the bills to be jointly addressed.

Floor leader Yoon said, "The regular session of the National Assembly is entering the stage of wrapping up the budget session, but discussions between the two parties on bills that need to be promoted for livelihood and economic recovery are being pushed aside. Before the end of the regular session, I hope the two parties will speedily consult on bills such as the CSPA, the Distribution Industry Act, the Serious Accidents Punishment Act, the Special Act on First-Generation New Towns, the Special Act on High-Level Radioactive Waste Management, and the Special Act on the Establishment and Operation of the Space Aviation Agency, so that the National Assembly can play a role in solving livelihood issues."

He added, "In fact, these bills are almost at the stage where opinions can be aligned, and most of the contentious issues for settlement are being resolved."

The Democratic Party also did not show significant opposition to the re-legislation of the CSPA. Hong Ik-pyo, floor leader of the Democratic Party, stated at a floor strategy meeting on the 21st, "We will carefully review the bill to enhance the effectiveness of corporate support and do our best to empower companies."

The proposed amendments included one by Yoon Chang-hyun of the People Power Party, extending the CSPA's validity period until December 31, 2027, and another by Kim Jong-min of the Democratic Party, extending it until 10 years from the enforcement date. On this day, the ruling and opposition parties agreed to set the expiration to October 2026. If it passes the full Legislation and Judiciary Committee meeting and the National Assembly's Legislation and Judiciary Committee's system and wording review, it is expected to be processed at the December regular session.