Treatment of Secured Claims in Korean Rehabilitation Proceeding

Abstract

After the Debtor Rehabilitation and Bankruptcy Law (RBL took effect in 2006, the pro-debtor insolvency system including DIP-type trustee has been enforced. However, the DRBL has not modified much with respect to the rights and obligations of the creditors, especially secured creditors. This article conducts an overall review on the treatment of secured creditors in the rehabilitation proceeding under the DRBL. Secured creditors have a priority to get paid when their secured property is sold or

foreclosed. The insolvent debtor has to bargain with secured creditors if it needs to continue to use the secured property. Theoretically, the debtor shall be able to utilize the secured property by making a payment to relevant secured creditor and whether or not to make such payment shall be determined in consideration of the going-concern value and the liquidation value of the secured property. However, the parties fail to reach, in many occasions, a conclusion due to the information asymmetry, hold-out of any party, etc. In such cases, the creditorsright to the secured property shall be restricted for the debtor revival for the benefit of all interested parties.