Termination of Homeplus rehabilitation endangers 12,000 workers

Members of the Homeplus branch of the Mart Workers Union under the Korean Confederation of Trade Unions march toward Cheong Wa Dae while bowing every three steps at Gwanghwamun Square in central Seoul, May 28. Yonhap

A court decision on Friday to terminate the rehabilitation proceedings for cash-strapped discount store chain Homeplus has raised concerns for the company's 12,000 employees who could lose their jobs.

After Homeplus first filed for rehabilitation in March last year, the retailer began reducing its offline outlets. Of the 126 locations, only 67 stores remain, while the number of employees dropped from 20,000 to about 15,000 following the downsizing.

After the company sold its supermarket unit Homeplus Express to NS Shopping last month to secure more cash, the workforce dropped again to 12,000 people.

If Homeplus ultimately goes into bankruptcy, the government will activate a substitute payment program, which would allow it to advance unpaid wages of up to 21 million won ($13,600) per employee and later recover the funds.

Employees who lose their jobs would also be eligible for unemployment benefits equivalent to 60 percent of their average wages over the three months preceding their termination.

The government also plans to provide at least 440 billion won in emergency liquidity to help small and medium-sized suppliers that are heavily dependent on Homeplus, with additional support to be made available if necessary.

Discussions have also begun on how to cushion the impact on workers.

On Tuesday, a coalition of five ruling bloc parties held a preparatory meeting at the National Assembly on ways to revive Homeplus and prevent mass unemployment. During the meeting, they called for the formation of a social dialogue body bringing together major shareholders, creditors, the government and labor representatives.

Some 3,000 workers were forced to take a temporary leave after Homeplus shut down 37 stores last month, fueling fears of bankruptcy.

With its sales falling, Homeplus has neglected its payroll, including store employees and suppliers. Among over 4,600 suppliers, 47 percent depend on Homeplus for more than half of their overall sales. Some of them have unpaid bills from the company amounting to hundreds of millions of won.

According to a survey last month by the Korea Federation of SMEs of 150 small- and medium-sized companies that have supply contracts with Homeplus, more than 40 percent had overdue bills for the company worth 500 million won or more. The average delinquent bill was 774 million won.

The Seoul Bankruptcy Court on Friday rejected the revised rehabilitation plan Homeplus submitted earlier this week, noting the company failed to come up with the necessary funds of at least 200 billion won to carry out the plan. Homeplus has 14 days to appeal the decision.

The retailer, which is wholly owned by private equity firm MBK Partners, has become financially strapped due to a slump in the discount store industry and entered court-led rehabilitation proceedings in March last year.