Korea’S Newly Enacted Unified Bankruptcy Act: The Role of the New Act in Facilitating (or Discouraging) the Transfer of Corporate Control

Abstract

Korea recently enacted the Unified Bankruptcy Act. It aims to streamline existing bankruptcy procedure by consolidating various statutes governing bankruptcy into a single statute. Prior to the current enactment, when a company was in distress, it could restructure itself and continue its operation through corporate reorganization or through composition and, during the reorganization procedure, the incumbent manager was often discharged. Under the new statute, a single type of rehabilitation proceeding is available for a distressed company and the incumbent manager is generally retained as the receiver. This article reviews the current bankruptcy regime in Korea and argues that this change has a risk of being used as an entrenchment device for incumbent managers. In a country where control transfer rarely takes place the transfer of corporate control would become even more difficult. Further, this article argues that in order to ameliorate this risk, it would be desirable to require a sales process once a distressed company is in corporate bankruptcy proceedings. (A revised version was published as 24 UCLA Pac. Basin L.J. 201 (2007).)