[Jeon Daegyu's 7 Trials and 8 Failures] Measures for Insolvency After Completion of General Rehabilitation

Doctor A filed for commencement of rehabilitation proceedings with the court in January 2019 when the hospital he was operating became so financially distressed that he could not pay the lease fees related to medical devices. At the time of filing for rehabilitation proceedings, his assets were worth 2 billion KRW, and his liabilities amounted to approximately 3 billion KRW. Because his liabilities were 3 billion KRW, he could not use the individual rehabilitation procedure and thus applied for the ordinary rehabilitation procedure.

The rehabilitation proceedings proceeded smoothly, and around October, the court approved the rehabilitation plan. Through debt adjustment under the rehabilitation proceedings, the burden of debt repayment was reduced, and it was judged that there was no particular difficulty in repaying debts such as lease fees. When A started repayment according to the rehabilitation plan, the court terminated the rehabilitation proceedings around December. After the rehabilitation proceedings were terminated, A operated the hospital without any problems and was repaying debts according to the rehabilitation plan. However, problems arose in February 2020. Due to social distancing measures caused by COVID-19, the hospital’s income sharply decreased, making it impossible to properly perform the rehabilitation plan. What should A do?

If an individual rehabilitation procedure (referred to as the general rehabilitation procedure) is terminated early and an unavoidable reason (such as a sharp decrease in income) arises that makes it impossible to perform the rehabilitation plan, what remedies are available under insolvency procedures? If the rehabilitation proceedings had not yet been terminated, the issue could have been resolved by modifying the rehabilitation plan, i.e., by reducing the amount to be repaid. However, since the rehabilitation proceedings have been terminated and the court can no longer intervene, the rehabilitation plan cannot be changed. There are several options that individual debtor A can consider in the current situation.

First, he can apply for rehabilitation proceedings again. Although A has already applied for rehabilitation proceedings once and they were terminated, he can apply for commencement of rehabilitation proceedings again. There are no special eligibility restrictions for applying for rehabilitation proceedings. Since the reapplication is due to an unforeseen income decrease caused by COVID-19, it is difficult to regard this as an abuse of rehabilitation proceedings. Even if A reapplies for rehabilitation proceedings, the original debt does not revert to its original state. Because the rehabilitation plan was approved in the previous rehabilitation proceedings, the original debt was changed to the amount to be repaid under the rehabilitation plan. For example, if creditor Gap’s claim was 500 million KRW but the previous rehabilitation plan stipulated repayment of only 200 million KRW, Gap’s claim is changed to 200 million KRW upon approval of the rehabilitation plan. Therefore, A can apply for rehabilitation proceedings again based on the debt amount changed according to the rehabilitation plan. Of course, amounts already repaid after approval of the rehabilitation plan are excluded from the debt. However, if rehabilitation proceedings are reapplied for, there may be a burden of having to prepare a rehabilitation plan with a repayment period of 10 years again.

Next is applying for individual rehabilitation proceedings. To use individual rehabilitation proceedings, unsecured debts must be 1 billion KRW or less, and secured debts must be 1.5 billion KRW or less at the time of application. If, as a result of debt adjustment through the previous rehabilitation proceedings or repayment according to the rehabilitation plan after its approval, the remaining debt at the time of applying for individual rehabilitation proceedings is below these amounts, A can apply for individual rehabilitation proceedings.

Finally, filing for individual bankruptcy can be considered. If performing the rehabilitation plan is completely impossible and future income is expected to be insufficient to the extent that the hospital must be closed, filing for individual bankruptcy is also an option. This is especially a strong alternative if A is elderly and judges that continuing as a doctor is difficult. However, in general, since doctors are expected to have high income, it would not be easy to have remaining debts discharged even if individual bankruptcy is filed.

In conclusion, if A’s remaining total debt is below the amounts required for individual rehabilitation proceedings, he can use individual rehabilitation proceedings; otherwise, he has no choice but to apply for rehabilitation proceedings again.

Jeon Dae-gyu, Chief Judge, Seoul Rehabilitation Court

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