Corporate Rehabilitation Lawyer
Corporate Rehabilitation Lawyer | A step-by-step guide from petition to plan confirmation
Corporate rehabilitation is a court-supervised restructuring procedure for companies that are insolvent or heading toward insolvency but still have a viable business to save (통합도산법, 채무자 회생 및 파산에 관한 법률). Unlike liquidation, the goal is to keep the company operating under a repayment plan approved by creditors and the court. Filing triggers an automatic stay that halts most individual collection actions, giving management breathing room to negotiate a plan. The process is document-heavy and time-sensitive, and the outcome depends heavily on whether creditors and the court are persuaded the business can generate enough cash flow to fund the plan.
Corporate Rehabilitation | Filing the Petition and the Effect of the Automatic Stay
The first question most business owners ask is what actually happens the moment the petition is filed, and how quickly creditor pressure stops.
Who May File
A company itself, or creditors holding a certain proportion of claims, or shareholders holding a certain proportion of equity, may petition for rehabilitation when the company is unable to pay debts as they become due or faces imminent insolvency (채무자 회생 및 파산에 관한 법률 제34조). The petition must be filed with the district court (or the Seoul Bankruptcy Court, depending on the company's registered address and asset size), and must include financial statements, a creditor list, and an initial explanation of why rehabilitation rather than liquidation is appropriate.
Commencement Order and Comprehensive Stay
If the court finds grounds to commence proceedings, it issues a commencement order, which triggers a comprehensive prohibition on compulsory execution, provisional seizure, and other individual enforcement against the company's assets (채무자 회생 및 파산에 관한 법률 제58조). Even before the commencement order, the court may issue a temporary restraining order to prevent creditors from moving assets out of reach while the petition is under review.
Custodian or Debtor-in-Possession
The court typically appoints the existing representative director as custodian under the debtor-in-possession model, unless there is evidence of past mismanagement or fraud, in which case an outside custodian may be appointed instead (채무자 회생 및 파산에 관한 법률 제74조). This decision materially affects whether current management retains day-to-day control during the case.
⚠ The window to act before default judgments or seizures pile up is narrow
Once individual creditors obtain enforceable judgments or complete provisional attachments before filing, reversing those steps inside the rehabilitation case becomes harder. Filing earlier preserves more options for the comprehensive stay to actually protect the company's assets.
Corporate Rehabilitation | Claims Investigation and the Rehabilitation Plan
Once the case is underway, the process shifts to determining exactly who is owed what, and then negotiating a plan that creditors and the court will accept.
Claim Filing and Investigation
Creditors must file their claims within the period set by the court, after which the custodian and other stakeholders may raise objections that are resolved through a claim investigation procedure or, if unresolved, litigation over the existence or amount of the claim (채무자 회생 및 파산에 관한 법률 제147조). The result determines each creditor's voting power and expected recovery under the plan.
Drafting and Voting on the Plan
The debtor or custodian prepares a rehabilitation plan proposing how each class of claims (secured, unsecured, equity) will be repaid, often through reduced principal, extended maturities, or debt-to-equity conversion. The plan is put to a vote by class, and generally requires the consent of a special majority within each class, such as two-thirds of unsecured claim amounts (채무자 회생 및 파산에 관한 법률 제237조).
Court Confirmation and Cram-down
If the required majorities are met and the plan satisfies fairness and feasibility requirements, the court confirms the plan, which then binds all creditors including those who voted against it (채무자 회생 및 파산에 관한 법률 제243조). In limited circumstances the court may confirm a plan even without full consent from every class, provided statutory conditions for such a cram-down are met.
⚠ Missing the claim filing deadline can permanently bar a creditor's recovery
Creditors who fail to report their claims within the period fixed by the court generally lose the ability to participate in the plan or receive distributions under it (채무자 회생 및 파산에 관한 법률 제148조, 제152조). Both debtor companies and their known creditors need to track this deadline carefully.
Corporate Rehabilitation | What Changes for Management, Employees, and Creditors
Business owners often care most about practical consequences: does the CEO keep the job, can employees be paid, and what leverage do lenders retain.
Management's Position During the Case
Under the debtor-in-possession structure, the incumbent representative director generally continues to manage the company as custodian, but major transactions above certain thresholds require prior court approval (채무자 회생 및 파산에 관한 법률 제61조). Shareholders' rights, including the right to appoint directors, can also be restricted while the case is pending, and existing equity may be diluted or cancelled under the confirmed plan.
Employee Wages and Ongoing Contracts
Wage claims and severance pay owed to employees for work performed can qualify as claims with priority treatment, and unpaid wages within a certain period before filing may receive preferential status separate from ordinary unsecured claims. Whether ongoing supply or lease contracts continue is decided case by case, since the custodian can choose to affirm or reject certain executory contracts depending on whether they benefit the rehabilitation.
Secured Creditors and New Financing
Secured creditors do not lose their security interests outright, but their ability to enforce them individually is suspended during the stay, and their treatment under the plan is negotiated separately from unsecured claims. The court may also authorize new financing (debtor-in-possession financing) with priority repayment status to keep operations funded through the case (채무자 회생 및 파산에 관한 법률 제179조).
Corporate Rehabilitation | From Initial Consultation to Plan Confirmation
Review cash flow, debt structure, and asset status to determine whether rehabilitation, out-of-court workout, or liquidation better fits the company's situation.
File the rehabilitation petition along with financial statements and creditor lists, and request a temporary restraining order if urgent asset protection is needed before commencement.
If the court finds grounds for proceedings, it issues a commencement order and appoints a custodian, triggering the comprehensive stay on individual enforcement.
Creditors file claims within the court-set period; the custodian reviews and, where necessary, disputes claims through the investigation procedure.
The rehabilitation plan is drafted, submitted to a creditors' meeting, and voted on by class of claims.
Once confirmed by the court, the company implements the plan under ongoing court supervision until obligations are performed or the case is closed early upon substantial completion.
Corporate Rehabilitation | How Fees Are Typically Structured
The court requires a filing fee calculated on a statutory schedule plus a deposit to cover the custodian's and court-appointed examiner's expenses; the deposit amount scales with the company's asset size and case complexity.
Attorney retainer fees for rehabilitation cases are generally set higher than standard civil litigation given the volume of financial documentation, creditor negotiations, and court filings involved, and are usually agreed based on company size and expected case duration.
Some engagements include a separate fee tied to specific milestones, such as successful plan confirmation or early termination of the case upon substantial performance, agreed in advance and calculated as a percentage or fixed amount rather than guaranteed.
If the court appoints an outside custodian or an examiner to assess feasibility, their compensation is paid from the company's estate and is separate from the debtor's own legal fees.
Throughout the case, additional costs may arise for accounting review, valuation, and periodic reporting required by the court, which should be budgeted for separately from the initial retainer.
※ Costs vary depending on case complexity and specific circumstances; exact fees will be provided during consultation. No specific outcome is guaranteed.
Corporate Rehabilitation | Self-Check Before You File
1️⃣ For Company Management Considering Filing
- Has the company already missed payments to major creditors, or is default imminent within the next few months?
- Does the underlying business still generate positive operating cash flow before debt service?
- Have you documented the causes of the financial distress in a way that can support a feasibility argument to the court?
- Are there creditors likely to pursue provisional seizure or enforcement in the near term that would justify an urgent restraining order request?
2️⃣ For Creditors Responding to a Rehabilitation Filing
- Have you confirmed the exact claim filing deadline set by the court for this case?
- Is your claim secured, and if so, have you reviewed how the stay affects your ability to enforce that security?
- Do you have documentation to support the claim amount if the custodian raises an objection during the investigation procedure?
- Have you calculated your likely recovery under the proposed plan compared to a liquidation scenario?
3️⃣ For Shareholders and Directors
- Do you understand how the plan may affect existing equity, including potential dilution or cancellation of shares?
- Have you reviewed which transactions now require prior court approval under the debtor-in-possession structure?
- Is there a risk the court will appoint an outside custodian instead of retaining current management, based on past conduct?
4️⃣ For Employees of a Company in Rehabilitation
- Have you confirmed whether your unpaid wages qualify for priority treatment under the case?
- Do you know whether your employment contract is being continued or is subject to review by the custodian?
- Have you kept records of unpaid wage and severance amounts in case a separate claim needs to be filed?
