Courts overwhelmed by surging insolvent companies

By Lee Hyo-sik

Courts have been overwhelmed by the surging number of businesses filing for bankruptcy protection as many have failed to service their debt amid the prolonged economic slump.

However, the number of judges handling corporate bankruptcies has not been increased, placing heavier workloads on each of them. This is feared to make it more difficult for courts to effectively implement revival plans for debt-ridden corporations, according to industry analysts, Tuesday.

A total of 562 companies filed for court receivership in the first seven months of this year, up from 540 a year earlier, according to the Supreme Court. If the current trend continues, the figure could reach as many as 1,000 by the end of this year. In 2015, 925 enterprises filed for bankruptcy protection.

Under snowballing debts, companies file for court receivership, freezing debt obligations and assets, in order to avoid all-out bankruptcy.

Of 14 district courts that manage financially-strapped companies, the Seoul Central District Court has put 460 of them under its management in the January to July period. The assets held by these total 26 trillion won ($24 billion).

“A growing number of companies are failing to pay off their debts, hit hard by the prolonged economic downturn,” a Supreme Court official said. “Unlike in the past, many firms have become more willing to undergo court management to get back on track.”

In contrast to the soaring number of court-managed businesses, the number of judges has remained little changed.

Only 84 judges at the 14 district courts are assigned to oversee corporate revival procedures. At the Seoul Central District Court, only 18 judges are dealing with 450 companies, up from six in 2000. On average, one judge handles 26 companies, raising concerns that bankruptcy proceedings may not be effectively managed.

“We can see more and more businesses opt to file for court receivership as they become unable to meet their obligations,” said an executive at one of the country’s major business associations. “The ongoing economic downturn has hit many firms across all industries, forcing them to file for bankruptcy protection. Courts then decide to grant receivership to only those deemed to be more valuable when alive than liquidated.”

He then said courts should mobilize more resources to more effectively operate debt-ridden companies and help them get back on their feet, stressing that if not, tens of thousands of workers may lose their jobs.

“I think the number of companies that will file for bankruptcy protection this year will be the biggest since 1998 when the Asian financial crisis hit Korea,” the executive said. “More judges should be called to manage financially-struggling enterprises so that these businesses can normalize operations and graduate from receivership as soon as possible.”