On the 7th, the Corporate Restructuring Promotion Act to be processed in the Legislation and Judiciary Committee
Grace period for the Act extended to October 2026
Expected to be processed in the plenary session on the 8th
The ruling and opposition parties processed the amendment to the "Corporate Restructuring Promotion Act (기촉법)" on the 7th at the National Assembly's Legislation and Judiciary Committee. This amendment aims to detect early signs of corporate insolvency before bankruptcy and support rapid normalization through autonomous consultations among creditors.
The Corporate Restructuring Promotion Act provides the legal basis for corporate "workouts." It was enacted as a temporary law in 2001 and has been operated six times through re-enactments. However, it lost its effect after the sunset clause expired on October 15 last year. In response, companies facing difficulties due to high interest rates and prolonged low growth urged the National Assembly to pass the act, which passed the relevant standing committee, the National Assembly's Political Affairs Committee, on the 28th of last month. The amendment includes provisions to extend the act's validity for three years until 2026. Attention was focused on whether the Legislation and Judiciary Committee would pass the bill, as it plays a role as a system supporting corporate revival by detecting early signs of insolvency before bankruptcy and supporting rapid normalization through autonomous consultations among creditors.
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. Additionally, the number of small and medium-sized enterprises showing signs of insolvency, based on credit risk assessments conducted annually by banks on credit-granting companies, rose by 26 to 183 as of last year compared to the previous year.
If this amendment passes the plenary session on the 8th, companies showing signs of insolvency will be able to receive workout (restructuring) support such as maturity extensions and financial assistance with the consent of more than 75% of creditors. Even in temporary liquidity crises, market support will be possible on the condition of creditor agreement.
On the same day, the Legislation and Judiciary Committee also processed the "Partial Amendment to the Act on the Governance of Financial Companies (Governance Act)" and the "Partial Amendment to the Credit Cooperatives Act," among others.
The "Act on the Management of Personal Financial Claims and Protection of Personal Financial Debtors" faced opposition due to its provision requiring creditors to notify debtors of the expiration of the statute of limitations, which conflicts with existing civil law. Therefore, it was decided to continue reviewing it at the next Legislation and Judiciary Committee meeting.
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