South Korea’s financial regulator will introduce a U.S. Chapter 11-inspired pre-packaged plan to facilitate reorganization and rehabilitation of distressed business entities by combining the best of its debt workout and court receivership programs, according to a plan briefed to acting President Hwang Kyo-an on Wednesday.

The new measure to be further developed during the first half of this year allows creditors to lead a rescue plan including fresh loan support for debtors before sending them to the bankruptcy court for normalization process.

The new rule capitalizes on fresh loan support under the out-of-court debt workout program as well as ensuring court protection from creditors.

The government will soon form a task force team together with a court and state-run banks to materialize the plan in the first half of this year when a special court dedicated to business reorganization is organized.

“The government will build an environment where this program will be leveraged as a new corporate bankruptcy regime like Chapter 11 in the U.S.,” said Financial Services Commission Chairman Lim Jong-ryong.

The FSC also decided to provide an objective standard to evaluate credit risk to induce routine restructuring of business entities led by the market, while operating an independent evaluator to set the price for bond issues to finance restructuring.

A business restructuring fund will also be raised to channel sufficient funds to companies in the process of business reorganization. State-run debt clearing house KAMCO will expand the ceiling of its sale and lease back program to 500 billion won ($420 million) from 100 billion won to help vulnerable companies sell asset more easily and also allow the program available to large companies.

By Chung Seok-woo

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]