[Corporate Revival 2.0]② "Can Companies Be Revived by Lending More Money?"... The Key to Restructuring Is 'Corporate Competitiveness'

An Overview of Domestic Restructuring and Support Systems
Beyond Simple Financial Aid: The Need to Reorganize Business Portfolios
"The Key Is to Establish a Sustainable Cash Flow Structure"

Editor's NoteThere are signs that precede corporate insolvency. While signals such as declining sales and profits and increasing debt can continue for years, many companies worry about the stigma of restructuring and choose to endure with loans, only to ultimately collapse. By contrast, companies that take proactive measures are sometimes able to turn crisis into opportunity. The Asia Business Daily is conducting a three-part series to diagnose the golden hour for corporate restructuring in Korea, seeking ways to establish a restructuring ecosystem that allows companies to act before deterioration sets in, and exploring the roles of the government, financial institutions, and private capital.

① "Borrowing money until the brink of collapse"... Companies missing the golden hour for restructuring
① [Interview] "Once cash runs out, it is already too late... Restructuring should be seen as a management tool, not a failure"
② "Can companies be revived by lending more money?"... The key to restructuring is 'corporate competitiveness'
② [Interview] "The most important part is analyzing the cause, then choosing and focusing"
③ The government must set the stage... A proactive restructuring ecosystem where companies and financial institutions move first

It is not the case that there are no restructuring systems in place for domestic companies that show signs of insolvency. There are step-by-step mechanisms, from identifying early warning signs through credit risk assessment to rapid financial support, pre-workout, workout (corporate financial structure improvement), and rehabilitation procedures. However, the problem is that ‘giving companies more time’ and ‘making them able to generate profits again’ are different matters. Simply injecting funds to extend maturities does little to restore a company's fundamental competitiveness.

According to financial authorities on September 22, as of the end of 2024, many in-house management improvement programs are in operation, supporting companies rated B in credit risk assessment—i.e., firms at a pre-insolvency stage. At the end of 2024, there were 1,222 companies using such in-house management improvement programs. Of these, 581 received rapid financial support, 321 were in pre-workout arrangements, and 320 in special agreements. Among these, 1,179 were small and medium-sized enterprises (SMEs), accounting for 96.5% of the total.

Among the companies whose in-house management improvement programs ended in 2024, 70.3% completed the program after normalizing management, while 20% ended with ‘inability to normalize.’ Companies with more severe warning signals, such as those rated C or D, are subject to private restructuring such as workout based on the Act on Corporate Restructuring Promotion, or are put through formal rehabilitation procedures.

However, the 7th round of the Corporate Restructuring Promotion Act, which allows lead creditor banks to provide support through maturity extension, debt rescheduling, and financial support for C-rated companies, is scheduled to expire at the end of this year. Gu Jung-han, Senior Research Fellow at the Korea Institute of Finance, pointed out the scheduled sunset of this law as the main weakness in the current restructuring system, saying, "There has been no news yet of an extension. Due to ongoing constitutional disputes, the law has remained temporary, but at the very least, its extension is needed." If the law expires, the number of companies forced to choose court-led rehabilitation procedures is likely to increase, raising the burden significantly. Financial authorities agree on the need to make the law permanent, but debates over potential infringement of property rights and constitutionality continue to intensify.

Despite these institutional frameworks, some point out that the restructuring ecosystem for Korean companies still lags behind advanced markets such as the United States. According to Lim Jeong-ju, Head of Restructuring at Alvarez & Marsal Korea, "Compared to mature markets like the United States, the difference lies not only in legal systems but also in the depth of the entire restructuring ecosystem." He explained, "In developed markets, there is a long-established accumulation of professional restructuring advisory firms, investors and capital specializing in distressed companies, negotiation practices between corporations and creditors, and a variety of restructuring options that can be utilized outside of the courts."

In the United States and other overseas markets, it is common for both debtors and creditors to work with professional restructuring advisory firms to design and execute specific plans. Restructuring through private capital is also cited as an area in which Korea lags behind other major countries.

In recent years, the European Union and others have been pursuing a hybrid workout approach that combines the strengths of traditional rehabilitation procedures and out-of-court workouts. In Korea, the Seoul Bankruptcy Court’s Pre-ARS program adopted in 2025 is cited as a similar example, but its actual utilization remains low. Lee Jeong-yeop, CEO of Lawfirm Lojibsa and former Chief Judge of the Seoul Bankruptcy Court, said, "Preventive restructuring systems such as Pre-ARS and hybrid approaches currently do not function effectively," adding, "There must be mechanisms to compel creditor participation to some extent."

According to experts, ‘proper’ corporate restructuring must go beyond simple financial support. Myung Eun-jin, partner at Luxcent Partners, noted, "Providing new funds or extending maturities is like putting a company on a ventilator or giving an injection to buy time," adding, "When a company faces a critical situation, it must cut out problematic elements and put in something new. This is what it means to realign business portfolios and reallocate resources."

In other words, in order for companies to truly change their profit structures, they must implement measures such as withdrawing from unprofitable businesses, selling non-core assets, adjusting business portfolios, consolidating affiliates, restructuring workforce and organizations, and improving debt structures. This is why many restructuring experts cite Doosan Group—which has shifted its core businesses from consumer goods to heavy industry and, more recently, to nuclear power, robotics, and semiconductor materials—as a model case of successful restructuring. Experts also emphasize that, as asset values decline and it becomes more difficult to find new investors once distress worsens, companies must act preemptively to overhaul both their business and financial structures before crises escalate.

Financial authorities also agree that the direction of restructuring support should shift away from mere liquidity provision toward real, sustainable improvements in business management. The Financial Services Commission previously stated that in order to increase the chances of successful management improvement, systems like rapid financial support should be strengthened not just as simple liquidity provision, but as a holistic package of ‘debt restructuring, new funding, and management consulting.’

Myung, partner at Luxcent, added, "Companies should not merely focus on downsizing, but also on selecting the necessary tasks to improve competitiveness," emphasizing, "They need to consider how to reallocate leftover capital and resources after downsizing. Restructuring is not just about cutbacks, but about refocusing resources on core businesses."

This content was produced with the assistance of AI translation services.