[OUTLOOK]Restructure the Restructuring Concerns

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[OUTLOOK]Restructure the Restructuring Concerns

A corporate restructuring company is involved in the "Lee Yong-ho gate," throwing into confusion restructuring firms that are just starting to take their first steps. The duties and roles of these firms are becoming ever more important in strengthening the overall economic base and in strengthening the industrial structure.

Corporate restructuring basically entails four stages: Taking on a corporation's bad debt and debt adjustment, infusing new capital, reforming the business and increasing the value of the corporation.

Successful corporate restructuring requires the ability to work with interest groups within a company, such as managers and employees, and deliberate with major outside decision-makers, such as creditors, shareholders and the court.

Secondly, a thorough understanding of the concerned company's competitiveness and its industry and market is necessary. An ability to gauge the company's prospects is also necessary.

However, when creditors are involved in corporate restructuring, it is usually difficult to reach agreements with other interest groups. They are constrained from making bold decisions such as debt adjustment or closing down companies.

In actuality, workouts with creditor councils at the center are therefore evaluated as not being able to bring about visible results. As a result, from the point of view of the concerned companies, corporate restructuring until now has been limited to changing hands between the credit owners without real improvement in efficiency or basic structure.

Also, foreign investment companies lack an understanding of Korean companies and industries and have difficulties assessing the sentiments of Korean creditor financial institutions, which means they are unable to proceed to the next stage of corporate restructuring - infusion of new capital - and persist with keeping their authority as creditors.

The government introduced the corporate restructuring company system by amending the Industrial Development Act in 1999 to overcome these limitations. Under the premise of profit making, the restructuring firms have been given the power to make decisions on autonomous investment. They can quickly withdraw investment from companies that lack prospects through liquidation, make additional investment in feasible companies to raise their values and collect investment money by selling their shares after a period of time.

The restructuring firms can as third parties effectively readjust the interests of various companies involved in the initial stage of debt readjustment to devise drastic corporate restructuring proposals. And, because most of these firms are based in Korea, they can make investment decisions based on thorough analysis. In that aspect, we are to conclude that corporate restructuring companies are best suited for corporate restructuring during normal times.

A look at the investment amount shows that these firms have grown tremendously. Investment in 1999 was 302.8 billion won ($231 million); it was 1.8 trillion won at the end of 2000. Many companies, such as Wise Control, Korea PTG, Dong Shin Pharmaceuticals and Sejin, escaped being placed under court receivership thanks to successful restructuring operation carried out by a restructuring company.

Nevertheless, the assessment of the status of corporate restructuring companies in general is not satisfactory. Some corporate restructuring firms were involved in questionable transactions or were more concerned with short-term benefits than reviving companies.

Mechanisms preventing restructuring companies from growing into large ineffective firms and from being degraded into a private depository of management are being worked out. Of course, corporate restructuring firms should attempt to consolidate transparent and healthy management.

Fundamental corporate rest-ructuring has not taken place in the wake of the financial crisis in 1997. This is due to a grave lack of experience, human resources, and capital in the institutions in charge of corporate restructuring.

Although it is belated, corporate restructuring firms should be encouraged and promoted with active support from business circles. We must induce the healthy development of the economy by encouraging the development of competitive restructuring companies that would increase the value of bad debt and revitalize financial institutions. This would lead to an overall improvement in the infrastructure of the economy. This is the true way to advance corporate restructuring in the real sense, taking preventive measures against dishonor and erecting an efficient business management infrastructure.


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The writer is chairman of the Association of Corporate Resturcturinfg Companies.

by Lee Young-tak

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