Methodical Restructuring Required

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Methodical Restructuring Required

State-Funded Competition From Backrupt Firms Harms Healthy Competitiors and the Economy.

Today the fate of dozens of financially troubled corporations will be announced. The upward trend in the stock market over the last three days is in large measure a reflection of the perception that the government and creditors have come to their senses and returned to a stance based on sound principles in regard to the Dong-Ah Construction Co. and the Hyundai Construction and Engineering Co. Public attention will be focused on today''s announcement to see if it reveals the application of equally good economic sense across the board. Not wishing to see a repeat of what happened in the 1998 restructuring, when big corporations were allowed to slip through and most of the others survived through mergers and court receivership rather than being liquidated, we would like to offer a few recommendations to the government and creditors.

First, keep in mind that court receivership is not intended to serve as an expedient for extending the life of failing enterprises. Although court receivership is supposed to be means of dealing with bankruptcy by managing the process of liquidation, it has for the most part been used to keep bankrupt firms going by freezing not only loan payments but even debt incurred through commercial transactions.

Second, avoid the temptation to give in and consent to court receivership for firms that creditors have deemed terminally ill. That would just prolong the agony. The system of debt workouts instituted two years ago was put in place for the very reason that it had proved to be extremely rare for a company to recover once placed in court receivership.

When a company has applied for court receivership, it may be worthwhile to give it one more chance by reviewing its potential for survival through on-the-spot inspections, but any such revised judgment has to be based on evidence that the firm is likely to regain financial viability. Leaving it up to the court to decide this solely on the basis of legal considerations is an evasion of responsibility on the part of the government and creditors.

That having been said, Hyundai Construction, which was for a long time on the critical list, appears to have been categorized as one of those firms that can be revived. If this is the creditors'' overall, voluntary judgment, then we respect it. But regardless of whether it is placed in court receivership, the fact is that Hyundai Construction''s credibility overseas has been tarnished and there is considerable public concern that the company will remain as a sort of epicenter of economic convulsions even if it does survive.

Another request that we make of the government is that it do its utmost to minimize the inevitable side effects of the restructuring announcement. Yesterday the government inaugurated a planning team to develop follow-up policy for corporate restructuring, and that is indeed a good sign. Of course, the need to prepare for a possible domino effect of successive bankruptcies among subcontractors and for ensuring a safety net for the newly unemployed is most urgent, as is the need to keep the capital market operating smoothly. These are the areas in which the government''s role is indispensable and must be conceived with wisdom and foresight. Also, those who are responsible for the corporate failures must be held accountable for any illegal acts they may have committed regardless of whether the corporations they ran manage to survive or not. Only in this manner can the second round of restructuring produce positive results.

by Lee Si-hyung

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