Public-Private Cooperation Supports 'Restructuring' for SMEs Facing Bankruptcy Due to COVID-19

Ministry of SMEs and Startups, Korea SMEs and Startups Agency, and Financial Sector Establish Customized 'Voluntary Restructuring Council' for SMEs

Source=Ministry of SMEs and Startups

[Asia Economy Reporter Kim Daeseop] A 'proactive and autonomous restructuring program' aimed at the swift business normalization and resurgence of small and medium-sized enterprises (SMEs) facing management crises due to the novel coronavirus infection (COVID-19) is being promoted. The Ministry of SMEs and Startups will collaborate with policy financial institutions and the financial sector to conduct a pilot project in the second half of this year.

According to the Ministry of SMEs and Startups on the 20th, an 'Autonomous Restructuring Council' will be established within the Rechallenge Support Center of the Small and Medium Business Corporation, a public institution under its jurisdiction, and a customized proactive and autonomous restructuring program for SMEs will be implemented through cooperation with private financial institutions. A dedicated team will be formed at the headquarters of the Small and Medium Business Corporation, and the program will be promoted in collaboration with the council composed of financial institutions.

This restructuring program was prepared to provide SMEs experiencing management crises due to COVID-19 with opportunities for business normalization and resurgence through autonomous restructuring before entering legal procedures (such as workouts or corporate rehabilitation procedures). This is the first time the Ministry of SMEs and Startups supports SME debt adjustment and restructuring plan establishment through a neutral organization.

Looking at the detailed procedures of the restructuring program, first, target companies for restructuring are identified through counseling and career guidance consulting. Then, the process proceeds in the order of prior consultation with creditor financial institutions, support for restructuring plan establishment, final negotiation and approval, and implementation and inspection.

For structurally limited companies unrelated to COVID-19, various alternatives such as business conversion and rehabilitation will also be proposed. All procedures will be led by a neutral council, conducted confidentially, swiftly, and fairly, and some of the costs incurred during the related procedures will also be supported.

The support target for the proactive and autonomous restructuring program will initially be companies affected by deteriorating economic conditions such as COVID-19, with credit exposure (debt) around 5 billion KRW and simple debt structures involving about three creditor banks. Approximately ten companies are expected to be supported this year.

The Ministry of SMEs and Startups explained that, until now, small-scale SMEs with credit exposure around 5 billion KRW generally faced bankruptcy or closure without opportunities for normalization through restructuring during management difficulties. Also, management normalization support systems such as workouts and corporate rehabilitation procedures have been difficult for SMEs to utilize, and the lengthy process made it challenging for small companies to cope with crisis situations like COVID-19.

The Ministry plans to complete detailed implementation preparations, including reorganizing regional Rechallenge Support Centers and signing agreements with the financial sector by the end of this month, conduct a pilot operation early next month, and supplement any issues arising during the implementation process to fully operate the program from next year.

Lee Jongtaek, head of the Rechallenge Support Division, said, "We plan to respond quickly and effectively to the expected surge in SME insolvency risks after COVID-19 through cooperation with private financial institutions and linkage with various support systems," adding, "The introduction of the proactive restructuring program is expected to contribute to the normalization of companies with low credit ratings and small scale through restructuring, preventing them from being driven to bankruptcy and closure."

This content was produced with the assistance of AI translation services.