Mergers and Acquisitions Practice of Reorganizing Corporations in Korea and Its Ongoing Change

Abstract

One of the most outstanding legal phenomena in Korean reorganization practice has been the pursuit of Mergers and Acquisition. In fact, in Korea, reorganization practice just begun one decade ago right after a number of conglomerates fell into bankrupt, when Korea faced nationwide economic disaster provoked by the lack of foreign key currency, and a number of conglomerates fallen into bankrupt rushed into court. M&A transaction in reorganization procedure emerged right after the rush of reorganization filings. Meanwhile, it has played significant role in rehabilitation of reorganizing company. Until now, almost every reorganizing company has succeeded in rehabilitating by being injected capital via M&A. Analysis of efficiency of M&A transaction of reorganizing company carried out last several years shows that the earlier debtor company initiates M&A, the more creditors are paid. This is the reason that all the reorganizing companies are urged to pursue successful M&A transaction. M&A of the reorganizing company has several features arising from the limitation to meet the needs of the debtor company; receiverinitiating,

fast completion and strictness in negotiation between the debtor and buyer. In reorganization practice, most M&A transactions are carried out through issuing new shares to buyer and, business transfer or asset transfer is rarely pursued. In the M&A process, fairness to potential buyers is the most highlighted, for it induces better price due to their competency to acquire the reorganization company. Recently, a significant change in reorganization practice regarding the pursuit of M&A occurs due to the Debtor Rehabilitation and Bankruptcy Law effective as of April 1st, 2006. It introduced quasi-debtor in possession receivership, and then gives reorganization practice a significant influence for receivers not to have to pursue M&A in every reorganization case. Moreover, new reorganization practice allows and respects the result of M&A conducted in a fair manner under the consent between debtor and major creditors. Furthermore, M&A practice of reorganizing company is changing regarding how and when it is

initiated, as global economic surroundings are on changing, and receivers of the reorganization company under the supervision of court is seeking efficient ways to M&A for rehabilitation of once financially distressed company.