Seoul Rehabilitation Court Makes Swift Decision for Proactive Restructuring
Grants Comprehensive Permission for Business Continuation... Trade Receivables to Be Repaid Normally
Creditor List to Be Submitted by the 18th... Rehabilitation Plan Due by June 3
The Seoul Rehabilitation Court has decided to commence rehabilitation proceedings for Homeplus, one of the domestic Big 3 large marts that applied for rehabilitation with the purpose of 'proactive restructuring.' This decision was made just 11 hours after the application was submitted.
On the 4th, the 4th Division of the Seoul Rehabilitation Court (Presiding Judge Jeong Jun-young, Chief Judge Park So-young) announced that to support proactive restructuring, it decided to commence rehabilitation proceedings and grant comprehensive permission for business continuation just 11 hours after the rehabilitation application. Homeplus applied for the commencement of rehabilitation proceedings at 12:03 a.m. on the 3rd, and after a representative hearing at 10 a.m., the Seoul Rehabilitation Court made this decision at 11 a.m.
Proactive restructuring refers to a procedure aimed at improving financial structure and restoring financial soundness through rehabilitation proceedings when a company is not currently insolvent but is at risk of insolvency or cash shortage within a few months if its financial structure does not improve.
In the case of Homeplus, it is currently operating normally without any issues related to payment settlements. However, as of the 28th of last month, the credit ratings for commercial paper and short-term bonds were downgraded, increasing the likelihood of higher financial procurement costs. If financial restructuring does not follow, there is a high possibility of a cash shortage crisis by May. Accordingly, Homeplus plans to proceed with rehabilitation proceedings focused on establishing a rehabilitation plan that centers on financial restructuring while continuing normal repayment of trade receivables related to operations.
Going forward, Homeplus will continue to repay trade debts normally, but financial debts will be suspended from interest and other financial expenses due to the effect of the rehabilitation commencement decision. Repayment will be made according to the rehabilitation plan, which will be established based on an investigation report on assets and operations by the court-appointed investigator (Samil Accounting Corporation) and will include financial restructuring measures.
However, considering that this is a proactive restructuring, the court decided not to appoint a manager (no manager appointment) but to place Homeplus under the supervision of the creditors' committee while commencing rehabilitation proceedings. The current representative is regarded as the manager, so the current executives will continue to manage the company during the rehabilitation process. However, if any illegal activities by the management are revealed in the future, they may be replaced. The creditors' committee will select advisory law firms and accounting firms to provide advice related to the rehabilitation proceedings and will negotiate with the debtor company for financial restructuring. A restructuring officer (CRO) recommended by the creditors' committee will oversee Homeplus's cash flow and other financial matters.
Additionally, with the court's 'comprehensive permission decision for business continuation,' Homeplus can fulfill its commitments to partner companies, consumers and customers, and employees. This includes normal execution of payments related to purchases and sales, payments to franchise owners, and employee salary payments as measures to continue normal operations. Accordingly, trade receivables related to operations will be paid normally in principle while the rehabilitation proceedings proceed. The court explained that this is similar to the 'first day order' issued by U.S. federal bankruptcy courts on the first day of a Chapter 11 corporate rehabilitation case, which allows the company to continue normal operations.
Meanwhile, following the commencement of rehabilitation proceedings, Homeplus must submit a list of creditors to the court by the 18th. The creditor reporting period is until the 1st of next month, and thereafter, the investigator, Samil Accounting Corporation, must submit an investigation report by the 28th. The rehabilitation plan submission deadline is June 3rd. A Homeplus official stated, "Despite the triple challenges of unreasonable regulations on large marts that have lasted over 10 years, the shift of purchasing channels online due to the COVID-19 pandemic, and the rapid growth of e-commerce companies such as Coupang and C-commerce (Chinese e-commerce), we have achieved sales growth for three consecutive years and are focusing on improving business performance." They added, "Although we unavoidably applied for rehabilitation proceedings to prevent potential financial issues that might arise due to the credit rating downgrade, all employees, labor unions, and shareholders will work together to overcome this wisely."
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