Korea Update: Commencement of SsangYong Motor Company’s Rehabilitation Proceeding

Seoul Bankruptcy Court Issued an Order to Commence a Rehabilitation Proceeding for SsangYong Motor Company

On April 15, 2021, the Seoul Bankruptcy Court issued an order to commence a rehabilitation proceeding for SsangYong Motor Company (“SsangYong”), the fourth largest South Korea-based automobile manufacturer. This is the second time SsangYong is undergoing a rehabilitation proceeding, 10 years after it exited the prior rehabilitation proceeding in 2011.

The commencement order was issued as the Autonomous Restructuring Support Program (the “ARS Program”), which SsangYong applied for in conjunction with the petition for commencement of the rehabilitation proceeding on December 21, 2020, turned out to be unsuccessful. The Court appointed Mr. Yong Won Jung, a director of SsangYong, as the receiver and issued a public notice of the important submission deadlines, including the deadline for creditors to file proofs of claims with the Court which is May 13, 2021.

Current Situation of SsangYong

During the ARS Program, SsangYong had a number of negotiations with interested parties including Mahindra & Mahindra Ltd. (largest shareholder), the Korean Development Bank (major financial creditor run by the Korean government), and HAAH Automotive (potential investor) for its speedy and successful restructuring. SsangYong obtained an approval from the Reserve Bank of India on the capital reduction of Mahindra & Mahindra Ltd.’s 75% ownership in SsangYong by more than 25% percent, which would allow HAAH Automotive to be the new largest shareholder of SsangYong by purchasing new shares worth $250 million. However, HAAH Automotive did not send SsangYong a letter of intent for investment by March 31, 2021, the deadline set by the Court as it failed to persuade other participating investors who were supposed to form a consortium, together with HAAH Automotive.

It appears that these participating investors had no assurance that SsangYong would make successful sales of its new vehicle models in the United States that would be launched in the next two years, which was known to be one of the goals HAAH Automotive intended to achieve with SsangYong. The debt of KRW 370 billion KRW (approximately USD 331 million) that SsangYong will be required to repay in full during the rehabilitation proceeding as priority claims also appeared to burden the investors, as the Korean Development Bank did not make any decision for its additional capital injection into SsangYong. According to the press coverage, SsangYong will be pursuing an M&A as part of the rehabilitation proceeding and plans to repay its debt with the proceeds gained through the M&A.

Immediate Next Steps

As the rehabilitation proceeding is now formally commenced, the court receiver will soon submit a list of SsangYong’s creditors who have secured or unsecured rehabilitation claims arising from grounds that existed before commencement of the rehabilitation proceeding. If SsangYong’s creditor finds that its claims are not accurately reflected in the list of creditors, it is advised to file proofs of its claim by the deadline set by the Court which is May 13, 2021. If the receiver agrees with the proof of claims as filed, it will reflect such claims in the rehabilitation plan. If however, such claims are contested, an objection will be filed with the Court, and the creditor will receive a notice of objection. The creditor who receives such notice may file an application with the Court for allowance of such claims within 30 days from the date of receipt. Once the Court confirms the rehabilitation plan, the claims that have not been reflected in the plan will be discharged by law.

In case of executory contracts, the receiver has the right to terminate such contracts, in which case counterparties to such contracts may claim damages against SsangYong for such termination. Such damages claims, however, will be treated as a rehabilitation claim, and will be subject to adjustment under the rehabilitation plan.

Meanwhile, the court-appointed examiner (usually an accounting firm) will review the overall status of SsangYong’s assets, liquidation value and its “going concern” value and submit a report with the Court. The receiver will prepare and propose a rehabilitation plan based on the examiner’s report. The rehabilitation plan will be reviewed at the creditors’ meeting, and be passed if it meets certain quorums set by the Korean Debtor Rehabilitation and Bankruptcy Act.

What Foreign Creditors Should Expect

Creditors known to SsangYong (whether domestic or foreign) will receive a notice in writing via email or post. The notice will advise the creditors of the fact that the rehabilitation proceeding has been commenced against SsangYong and that the creditors must file its claim with the Seoul Bankruptcy Court by the given deadline. The notice will probably be posted on SsangYong’s website as well.

We specialize in both domestic and international bankruptcy cases, with a wide range of representation experience in corporate rehabilitation and bankruptcy proceedings in South Korea and other insolvency proceedings globally. If you have any questions regarding how to preserve your claims in the SsangYong case or insolvency and restructuring in general, please do not hesitate to contact any member of our team.

By Yulchon, Korea, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact korea@transatlanticlaw.com 

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