[Invest&Law] Watcha Begins Rehabilitation Proceedings... Settlement Payments Unavoidably Delayed

Domestic online video service (OTT) company Watcha has officially entered rehabilitation proceedings. After the court previously issued a comprehensive prohibition order and a preservation disposition, it has now decided to commence the rehabilitation process. As a result, content suppliers and investors must file their claims or rights with the court as rehabilitation creditors or shareholders, and the payment of settlement funds, which was scheduled for the end of this month, is now inevitably delayed.

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On the 4th, the 17th Division for Rehabilitation at the Seoul Bankruptcy Court (Presiding Judge Lee Youngnam) decided to commence rehabilitation proceedings for Watcha. The current CEO of Watcha, Park Taehun, will serve as the rehabilitation manager. Rehabilitation creditors, secured creditors, and shareholders must submit their lists by the 1st of next month, and claims can be filed from the 2nd to the 22nd of the same month.

With this decision, stakeholders such as content suppliers and investors must file their claims within the deadline to exercise their rights as creditors or shareholders. If the deadline is missed or if they are not included in the submitted list, they may lose their rights. The investigation of rehabilitation claims and secured rights will take place from the 23rd of next month until October 22, and Watcha must submit its rehabilitation plan to the court by January 7 of next year.

This decision follows last month's comprehensive prohibition order and preservation disposition, marking the official start of Watcha's restructuring process. From now on, the company must obtain court approval for major management decisions such as asset disposal and entering into new contracts. The timing and method of repayment for rehabilitation claims will be determined by the rehabilitation plan approved by the court.

Watcha was founded in 2011 by CEO Park, a graduate of Seoul Science High School and KAIST, together with Chief Operating Officer Won Jihyun and Chief Technology Officer Lee Taehyun. The company began attracting significant attention from financial investors (FIs) after securing 800 million won in venture capital (VC) investment the following year. However, since around 2020, Watcha has been in a state of complete capital erosion for several years, and last year's accumulated deficit increased to approximately 260 billion won.

Recently, after Watcha received a "disclaimer of opinion" from its external auditor due to issues such as the repayment of 49 billion won in convertible bonds (CB), on the 8th of last month, one of its major investors, the VC "Inlight Ventures," filed for rehabilitation. At two hearings held during the same month, Inlight Ventures reportedly argued that, since Watcha had not repaid its debts for a prolonged period, rehabilitation proceedings were the appropriate way to recover their claims.

On the other hand, Watcha emphasized that commencing rehabilitation proceedings could damage the company's value and thus be disadvantageous to creditors. Watcha argued for the dismissal of the rehabilitation application, citing the fact that it had reduced its deficit from around 20 billion won in 2023 to the 2 billion won range last year, indicating management improvement.

As a result of this commencement decision, the relevant claims will now be classified as rehabilitation claims, making the order and timing of repayment uncertain. It is reported that partner companies, including content suppliers, have already been notified of settlement payment delays since last month.

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