Court Orders Fly Gangwon Rehabilitation Proceedings... Creditors Must File Claims by Next Month 14

The court has decided to commence rehabilitation proceedings for the airline Fly Gangwon, which is experiencing financial difficulties.

On the 16th, the 14th Division of the Seoul Bankruptcy Court (Presiding Judge Lee Dong-sik) approved the application for commencement of corporate rehabilitation for Fly Gangwon Co., Ltd., filed by Ayum Co., Ltd., the largest shareholder of Fly Gangwon.

Aircraft of Fly Gangwon with suspended operations.
[Image source=Yonhap News]

The court stated in its order, "Rehabilitation proceedings are commenced against the debtor (Fly Gangwon Co., Ltd.)," and "No administrator will be appointed for the debtor, and the debtor's CEO will be regarded as the debtor's administrator."

Additionally, the court set the reporting period for rehabilitation claims, rehabilitation secured claims, and shares from the 1st to the 14th of next month, and the investigation period for rehabilitation claims and rehabilitation secured claims from the 15th to the 28th of next month. Anjin Accounting Corporation was selected as the investigation committee.

Based on the case records and the examination of the debtor's representative, the court recognized the following: ▲ The debtor was established on April 12, 2016, for the purpose of domestic and international air transportation and aircraft usage business, mainly operating out of Yangyang International Airport in Gangwon Province, providing air passenger transportation services to customers ▲ Since 2019, the debtor has suffered a sharp decline in sales due to the spread of the COVID-19 virus, deterioration of credit due to overdue aircraft lease fees and insurance premiums, resulting in operational restrictions and significant liquidity deterioration ▲ As of the application date for commencement of rehabilitation proceedings, the debtor's assets were approximately 23.4 billion KRW, while liabilities were about 45.8 billion KRW, indicating a state of excess liabilities ▲ Accordingly, the applicant (Ayum Co., Ltd.) filed the application for commencement of rehabilitation proceedings on May 23, 2023.

The court stated, "According to the recognized facts above, there is a concern that the debtor may cause grounds for bankruptcy," and "Therefore, there is a cause for commencement of rehabilitation proceedings as stipulated in Article 34, Paragraph 1, Subparagraph 2 of the Debtor Rehabilitation and Bankruptcy Act."

It added, "Furthermore, there is no evidence to consider that there are grounds for dismissal of the application for commencement of rehabilitation proceedings as stipulated in each subparagraph of Article 42 of the Act."

Finally, the court decided, "Since this application is justified, rehabilitation proceedings are commenced against the debtor."

Earlier, Fly Gangwon submitted an application for commencement of corporate rehabilitation to the Seoul Bankruptcy Court on the 23rd of last month, citing reasons such as decreased sales due to the spread of COVID-19, accumulated debt and liquidity shortage due to suspension of flights, failed investment negotiations since the end of 2022, and the inability to improve financial structure and normalize management solely through management's self-help efforts.

At that time, Fly Gangwon appealed that normalizing management through a sale within the rehabilitation proceedings was an effective and reasonable measure.

The court decided on preservation measures on the 25th of last month and announced a comprehensive prohibition order. The comprehensive prohibition order prevents rehabilitation creditors or rehabilitation secured creditors from taking compulsory execution measures such as provisional seizure against the debtor's assets until the rehabilitation proceedings commence under the Debtor Rehabilitation and Bankruptcy Act.

After conducting a representative examination on the 7th and inquiring opinions from the creditors' council and the Seoul Bankruptcy Court Management Committee on the 13th regarding the commencement of rehabilitation proceedings, the court made the decision to commence rehabilitation proceedings on this day.

Fly Gangwon plans to proceed with mergers and acquisitions (M&A) using the "Stalking Horse" method, which involves signing a conditional investment contract with a prospective buyer and confirming the buyer through a public bidding process.

The term "Stalking Horse" originates from the practice where a hunter sends out the horse he was riding first to reassure the prey before pursuing it; in this context, it refers to a method where a prospective buyer signs a prior contract and then a public competitive bidding is conducted simultaneously.

Currently suspending aircraft operations, Fly Gangwon announced on the 15th via a notice titled "Fly Gangwon Flight Cancellations from July 1 to October 30" posted on the company's official website that the full suspension (shutdown) of aircraft operations will be extended until the end of October.

In this case, Fly Gangwon's current Air Operator Certificate (AOC) may be revoked, but the company plans to resume ticket reservations by the end of this month and aims to resume flights before mid-July.

Meanwhile, this case was led to the decision to commence rehabilitation proceedings by attorney Jeon Dae-gyu (Judicial Research and Training Institute class 28), a former presiding judge of the Seoul Bankruptcy Court, who represented the case.

Attorney Jeon explained the significance of this decision, stating, "Considering the difficult economic circumstances and the local residents' desire to save Fly Gangwon, this decision reflects the Seoul Bankruptcy Court's will to rehabilitate companies facing financial difficulties."

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