Corporate Bankruptcy Lawyer
Corporate Bankruptcy Lawyer | A step-by-step guide to filing and liquidation
Corporate bankruptcy (파산) is a court-supervised procedure in which a company that is unable to pay its debts as they fall due, or whose liabilities exceed its assets, has its remaining assets collected and distributed to creditors before the corporate entity is dissolved (채무자 회생 및 파산에 관한 법률 제305조, 제306조). Unlike corporate rehabilitation, bankruptcy does not aim to keep the business running — it is an exit process. Filing early, before assets are dissipated or preferential payments are made to some creditors over others, generally gives directors and creditors more options and reduces the risk that directors are later accused of aggravating the company's financial state.
Corporate Bankruptcy | Grounds for filing corporate bankruptcy
A company (or, in limited cases, its creditors) can petition the bankruptcy court to open bankruptcy proceedings once certain statutory grounds are met. The two main grounds below are independent - either one is enough to support a petition.
This is the general ground for bankruptcy: the company has lost the ability to pay its debts as they become due, in a persistent and general way rather than a temporary cash-flow gap (채무자 회생 및 파산에 관한 법률 제305조 제1항). Bounced checks, tax delinquency notices, and repeated failure to pay salaries are commonly cited evidence. The court looks at the overall pattern, not a single missed payment.
For corporations specifically, bankruptcy can also be opened where total liabilities exceed total assets, even if the company is still making some payments (채무자 회생 및 파산에 관한 법률 제306조 제1항). This ground looks at the balance sheet rather than day-to-day cash flow, and is often established through an accountant's valuation submitted with the petition.
A petition can be filed by the company through its representative director, or by a creditor holding an enforceable claim (채무자 회생 및 파산에 관한 법률 제294조, 제295조). Directors who wait too long to file when the company is clearly insolvent may face later scrutiny over how remaining funds were used during the delay.
Bankruptcy vs. rehabilitation
If the business still has a viable core and the goal is to restructure and continue operating, corporate rehabilitation (회생) rather than bankruptcy may be the more appropriate path - the two procedures are governed by the same statute but serve different purposes. Which one fits depends on cash flow projections, the willingness of major creditors, and whether the business model itself remains sound.
Corporate Bankruptcy | Legal effects of the bankruptcy declaration
The moment the court issues a bankruptcy declaration order, the legal status of the company and its assets changes immediately. Understanding these effects helps directors and creditors know what to expect in the following weeks.
Loss of control over company assets
Once bankruptcy is declared, the right to manage and dispose of the company's assets passes from the directors to a court-appointed bankruptcy trustee (파산관재인) (채무자 회생 및 파산에 관한 법률 제384조). The trustee, not the former management, decides how remaining assets are sold and distributed.
Suspension of individual creditor actions
Pending lawsuits and individual enforcement actions by creditors against the company's assets are generally suspended once bankruptcy proceedings open, so that all creditors are treated through the collective proceeding rather than a race to seize assets (채무자 회생 및 파산에 관한 법률 제348조). Creditors instead file their claims with the trustee for review.
Dissolution of the corporate entity
A company is legally dissolved upon the opening of bankruptcy proceedings, though it continues to exist for the limited purpose of liquidation until the bankruptcy procedure is closed (상법 제517조). The company's registration is ultimately cancelled once the bankruptcy case is formally terminated.
Corporate Bankruptcy | What happens to employees and unpaid wages
Employees are often the most vulnerable stakeholders when a company fails. Korean law gives certain wage and severance claims a preferential position, and a public wage-guarantee fund exists to soften the impact of delayed payment.
Priority status of wage and severance claims
Unpaid wages and retirement benefits for the final period of employment are treated as claims with priority over most other unsecured creditors in the distribution of the bankruptcy estate (근로기준법 제38조). This does not guarantee full payment if the estate itself has little value, but it improves an employee's position relative to ordinary trade creditors.
Applying to the wage claim guarantee fund
Employees of a company that has entered bankruptcy or a similar insolvency procedure can apply to the wage claim guarantee fund operated under the Wage Claim Guarantee Act for advance payment of a portion of unpaid wages, retirement pay, and leave allowances, subject to statutory caps (임금채권보장법 제7조). This application is separate from, and does not require waiting for, the conclusion of the bankruptcy case.
Termination of employment and notice
A bankruptcy declaration itself does not automatically terminate employment contracts, but as a practical matter the trustee typically proceeds to end employment relationships as the business winds down, and statutory notice or notice-pay obligations under the Labor Standards Act continue to apply.
Corporate Bankruptcy | Director and representative liability during bankruptcy
One of the most common questions from company representatives is whether they will be personally liable for the company's debts. In most cases the corporate veil holds, but there are specific circumstances where directors face personal exposure.
Limited liability is the default rule
As a general rule, shareholders and directors of a corporation are not personally liable for the company's debts beyond their capital contribution (상법 제331조). Corporate bankruptcy on its own does not create personal debt for a director simply because the company could not pay.
Exceptions: guarantees, breach of duty, and tax
Personal liability can arise where a director personally guaranteed a company loan, where a director is found to have breached fiduciary duties causing loss to the company (상법 제399조), or where the company owes certain unpaid national or local taxes and the director qualifies as a person with de facto control over the company's affairs under tax law (국세기본법 제39조). These are the situations most worth reviewing with counsel before or during a filing.
Risk of criminal exposure for asset concealment
Directors who conceal, transfer, or destroy company assets in anticipation of bankruptcy, or who favor certain creditors over others in a way that harms the general body of creditors, can face criminal liability for bankruptcy-related offenses (채무자 회생 및 파산에 관한 법률 제650조, 제651조). This is a key reason to involve a corporate bankruptcy lawyer before taking any steps to move or sell assets.
Corporate Bankruptcy | How a corporate bankruptcy case proceeds
Before filing, counsel reviews the company's balance sheet, cash flow, major creditors, and pending litigation to confirm bankruptcy is the right path rather than rehabilitation or a private workout.
The petition is filed with the bankruptcy court together with supporting documents such as financial statements, a list of creditors and assets, and an explanation of how the company reached insolvency.
The court reviews the petition, may hold a hearing with the representative director, and if it finds grounds for bankruptcy, issues a declaration order and appoints a bankruptcy trustee to take over the company's assets.
Creditors file their claims with the trustee, who investigates and compiles a list of approved claims while liquidating the company's remaining assets, including collecting outstanding receivables.
Once assets are converted to cash, the trustee distributes proceeds to creditors according to their statutory priority, with secured and priority wage claims generally paid before general unsecured claims.
The court closes the case once distribution is complete or once it becomes clear there are insufficient assets to justify continuing, after which the company's corporate registration is cancelled.
Corporate Bankruptcy | Cost of a corporate bankruptcy filing
The court charges a filing fee based on the case, and a portion of the estate's remaining assets is typically reserved to pay the trustee's remuneration; these amounts scale with the size and complexity of the company's assets and liabilities rather than being fixed.
Retainer fees generally reflect the amount of preparatory work needed - the number of creditors, whether litigation is pending, the state of the company's bookkeeping, and whether director liability issues need to be reviewed alongside the filing itself.
Some engagements include a fee tied to the successful opening of bankruptcy proceedings or the completion of the case, structured differently from litigation contingency fees since bankruptcy does not produce a monetary award for the company.
Costs such as public notice fees, document certification, and expenses related to asset appraisal or accounting review are billed separately as they are incurred.
※ Costs vary depending on case complexity and specific circumstances; exact fees will be provided during consultation. No specific outcome is guaranteed.
Corporate Bankruptcy | Self-Check Before You File
1️⃣ For company representatives deciding whether to file
- Has the company missed payroll, tax payments, or loan installments for more than one cycle?
- Do total liabilities appear to exceed total assets on a realistic valuation?
- Have you made any payments to specific creditors recently that could look like preferential treatment?
- Are there company assets you are tempted to move, sell, or transfer before consulting a lawyer?
- Do you have personal guarantees on any company debt that would survive the company's bankruptcy?
2️⃣ For employees of a company that has filed
- Have you received your last one to three months of wages and any accrued severance?
- Has your employer or the trustee informed you officially that bankruptcy proceedings have opened?
- Do you have pay stubs, an employment contract, or a certificate of employment ready to prove your claim?
- Have you checked eligibility for the wage claim guarantee fund advance payment?
3️⃣ For creditors of a company in bankruptcy
- Do you have documentary evidence of your claim, such as contracts, invoices, or court judgments?
- Is your claim secured by a mortgage, pledge, or other security interest, or is it unsecured?
- Have you received notice of the claims-filing deadline from the court or trustee?
- Are you also considering whether a director's personal guarantee or liability applies to your claim?
