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Seoul Bankruptcy Court Holds Seminar Introducing New Corporate Restructuring Models: Pre-ARS and Hybrid Restructuring

2025.06.02

Introduction 
 
On April 16, 2025, the Seoul Bankruptcy Court hosted a seminar to introduce two innovative corporate restructuring models: the Pre-ARS (Pre-Autonomous Restructuring Support) and Hybrid Restructuring systems.  These new frameworks are designed to enhance corporate autonomy and flexibility, improve the efficiency of restructuring negotiations and procedures, and address the limitations of existing rehabilitation processes. 
 
 
1. Overview of Pre-ARS and Hybrid Restructuring 
 
The Seoul Bankruptcy Court announced the introduction of these two new restructuring systems to increase the effectiveness of corporate rehabilitation procedures and to secure the critical “golden time” for distressed companies. 
 
<ul>
	<li>Pre-ARS System: The Pre-ARS model allows companies to engage in confidential debt adjustment and restructuring negotiations with major creditors through court-facilitated procedures before formally filing for rehabilitation.  This preventive restructuring model aims to minimize the stigma and operational disruptions often associated with formal rehabilitation filings. </li>
	<li>Hybrid Restructuring System: The Hybrid Restructuring model combines the strengths of the “workout” process under the Corporate Restructuring Promotion Act (CRPA) and the rehabilitation procedures under the Debtor Rehabilitation and Bankruptcy Act (DRBA).  By allowing both processes to operate in tandem, this integrated approach seeks to maximize the benefits and synergies of each system while compensating for their respective shortcomings.  </li>
</ul>
 
 
2. Details of the Pre-ARS System 
 
Purpose 
 
Currently, the court operates the ARS (Autonomous Restructuring Support) program, which enables debtors to negotiate restructuring with creditors, but only after a formal rehabilitation filing.  This often results in negative consequences such as reputational damage and operational instability.  The Pre-ARS system, in contrast, provides a confidential channel for companies to negotiate with creditors before filing for rehabilitation, thereby minimizing stigma and business disruption.  
 
Key Features 
 
<ul>
	<li>Confidentiality: The Pre-ARS process is conducted privately, ensuring that all proceedings from application to negotiation remain confidential.</li>
	<li>Relaxed Application Requirements: Companies facing financial distress can apply for Pre-ARS even before formally initiating rehabilitation procedures, allowing for a more timely response to financial difficulties.</li>
	<li>Flexibility to Transition: If debt adjustment negotiations between the debtor and major creditors fail, the debtor retains the option to transition to other restructuring procedures, such as formal rehabilitation or workout processes. </li>
	<li>Protection of Trade Credit: Since Pre-ARS does not require a formal rehabilitation filing, it does not trigger contractual events such as acceleration clauses, allowing companies to continue normal business operations. </li>
</ul>
 
 
3. Details of the Hybrid Restructuring System 
 
Significance 
 
Previously, debtors had to choose between either the workout process or the rehabilitation procedure, making it difficult to leverage the advantages of both.  The Hybrid Restructuring model allows these processes to coexist, thereby compensating for their individual limitations and maximizing their combined strengths.  
 
Operational Method 
 
Under the Hybrid model, a financially distressed company can simultaneously initiate both the workout process (under the CRPA) and the ARS rehabilitation procedure (under the DRBA).  The court actively supports the workout process through comprehensive stay orders and broad business operation permissions, facilitating efficient restructuring. 
 
If a corporate improvement agreement is approved through the workout process, the company can withdraw its rehabilitation filing.  
 
If the agreement is not approved, the company may proceed with the rehabilitation process as desired.  
 
 
4. Implications 
 
The introduction of these new restructuring systems represents a significant advancement in addressing the gaps and limitations of existing rehabilitation procedures.  Companies can now respond more proactively to financial distress without the burden of formal rehabilitation filings, while creditors benefit from increased predictability and participation opportunities in the restructuring process.  Ultimately, these reforms are expected to help companies make the most of the “golden time” for restructuring, leading to more efficient and effective rehabilitation outcomes. 
 
 
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