With the Increase in Zombie Companies, Is the "Gichok Act" Gaining Momentum?

On the 28th, Discussion of the 'Corporate Restructuring Promotion Act' at the Political Affairs Committee Subcommittee

The National Assembly is discussing whether to re-legislate the "Corporate Restructuring Promotion Act (GiChokBeop)," which supports the early detection of signs of corporate insolvency before bankruptcy and facilitates swift normalization through autonomous consultations among creditors. As the business environment rapidly deteriorates due to interest rate hikes and rising raw material prices, leading to an increase in marginal companies unable to even pay interest, there are calls to urgently reinstate the GiChokBeop, which expired and lost its effect on the 15th of last month.

On the 12th, when a fine dust warning was issued across Seoul, the city center viewed from Namsan in Seoul was shrouded in fine dust accompanied by yellow dust. Photo by Jinhyung Kang aymsdream@

On the 28th, the ruling and opposition parties will review the "Partial Amendment Bill to the Corporate Restructuring Promotion Act" at the Legislation and Judiciary Committee subcommittee meeting held in the afternoon at the National Assembly. The GiChokBeop provides the legal basis for corporate "workouts." It was enacted as a temporary law in 2001 and has been operated six times since through re-enactments. If more than 75% of creditors agree, the workout system allows for corporate debt restructuring and new funding support.

The act is gaining attention as a system that supports corporate revival by detecting early signs of insolvency before bankruptcy and facilitating swift normalization through autonomous creditor consultations, increasing the likelihood of its passage on this day.

According to the Bank of Korea, the number of marginal companies increased by 14.8%, from 3,111 in 2017 to 3,572 in 2021. The number of small and medium-sized enterprises showing signs of insolvency, based on annual credit risk assessments conducted by banks on credit-granting companies, rose by 26 to 183 last year compared to the previous year. Representative Yoon Chang-hyun of the People Power Party, who proposed the amendment to the GiChokBeop, explained, "While the number of companies filing for rehabilitation has decreased since COVID-19, the number of companies filing for bankruptcy has significantly increased. This suggests that companies are enduring as much as possible through government measures such as maturity extensions and repayment deferrals instead of choosing rehabilitation, then heading straight to bankruptcy. Therefore, there is a growing call for the workout-based revival support system to play a more active role in preventing a large number of companies showing signs of insolvency from simultaneously going bankrupt."

On the same day, Yoon Jae-ok, floor leader of the People Power Party, proposed the formation of a "2+2 Livelihood Bill Promotion Council," involving policy chiefs and deputy floor leaders from both parties, at a floor strategy meeting held at the National Assembly, bringing up the GiChokBeop as one of the bills to be jointly addressed.

Floor leader Yoon said, "The regular session of the National Assembly is entering the final stage of budget approval, but discussions between the two parties on bills that need to be promoted for livelihood and economic recovery are being pushed aside. Before the regular session ends, I hope the two parties can speedily negotiate on bills such as the GiChokBeop, Distribution Industry Act, Serious Accident Punishment Act, First New Town Special Act, High-Level Radioactive Waste Management Special Act, and the Special Act on the Establishment and Operation of the Space Aviation Agency, so that the National Assembly can play a role in solving livelihood issues."

He added, "In fact, these bills are almost within reach of agreement, and most of the contentious issues for resolution are being settled."

The Democratic Party also has no major objections to re-legislating the GiChokBeop. On the 21st, Hong Ik-pyo, floor leader of the Democratic Party, stated at a floor strategy meeting, "We will carefully review the bill to enhance the effectiveness of corporate support and do our best to empower companies."

However, due to court criticisms regarding unconstitutional elements such as infringement of property rights of creditors who do not agree to workouts, the ruling and opposition parties are expected to deliberate on related supplementary opinions.

Currently, the National Assembly has amendment bills to the GiChokBeop proposed by Representative Yoon Chang-hyun of the People Power Party and Representative Kim Jong-min of the Democratic Party. Yoon’s bill includes extending the validity of the GiChokBeop until December 31, 2027, while Kim’s bill includes extending it until the day marking 10 years from the law’s enforcement date.

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