[Corporate Renewal 2.0]② "Will More Loans Lead to Revival?"...The Core of 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 warning signs when a company is facing financial distress. Signals such as declining revenue and profits, along with increasing debt, may continue for years. However, many companies, fearing the stigma of restructuring, ignore them and try to endure by taking on more debt, only to ultimately collapse. In contrast, companies that take proactive steps sometimes turn crises into opportunities. The Asia Business Daily will analyze the golden timing of corporate restructuring in Korea over three parts and explore ways to establish a restructuring ecosystem that encourages companies to act before they fall into distress, focusing on the roles of government, the financial sector, and private capital.

① "Borrowing money until the brink of collapse" ... Companies missing the golden window for restructuring
① [Interview] "When cash runs out, it's too late...Restructuring is a management tool, not a sign of failure"
② "Will lending more really save them?"...The key to restructuring is 'corporate competitiveness'
② [Interview] "The most crucial step is to analyze the causes, then make strategic choices and focus"
③ The government should set the stage...A proactive restructuring ecosystem led by corporates and the financial sector

It is not the case that there are no restructuring mechanisms available when signs of financial distress emerge among domestic companies. There are staged measures in place, ranging from identifying signs of distress through credit risk assessments, to swift financial support, pre-workout, workout, and rehabilitation procedures. The issue is that 'buying time for a company' and 'restoring a company's ability to generate profits' are two different things. Simply injecting funds or extending maturities does not easily restore a company's fundamental competitiveness.

According to the financial authorities as of September 22, 2026, there are a number of internal programs in operation that support management improvement for companies rated B in the corporate credit risk evaluation—even before distress becomes apparent. As of the end of 2024, 1,222 firms had used such internal management improvement programs. Of these, 581 companies received swift financial support, 321 companies entered pre-workout, and 320 companies had special agreements. Among them, small and medium-sized enterprises accounted for 1,179, making up 96.5% of the total.

Among companies whose internal management improvement programs ended in 2024, 70.3% completed the program through business normalization, while 20% concluded as 'unable to normalize.' For companies with more severe warning signs—those rated C or D—private restructuring based on the Corporate Restructuring Promotion Act, such as workouts, or court-administered rehabilitation procedures are initiated.

However, the Corporate Restructuring Promotion Act (version 7), which allows the main creditor bank to initiate actions for C-rated companies, such as maturity extension, debt restructuring, and capital support, is set to expire at the end of this year. Koo Jung-han, Senior Research Fellow at Korea Institute of Finance, cited the sunset of this act as the most regrettable aspect of the current restructuring system, saying, "There has been no news of an extension. Due to constitutional concerns, it became a temporary law, but at the very least, it should be extended for now." If the act expires, companies will be compelled to resort to court-managed rehabilitation procedures more frequently, increasing their burden. The financial authorities maintain that permanent implementation of the act is necessary, but constitutional controversies over property rights infringement remain fierce.

Despite such institutional frameworks, many point out that Korea's corporate restructuring ecosystem still has a long way to go compared to countries like the United States. Lim Jeongjoo, head of restructuring for Korea at Alvarez & Marsal (A&M), explained, "Compared to mature markets like the United States, differences exist not only in the legal frameworks themselves, but also in the depth of the surrounding restructuring ecosystem." He continued, "In mature markets, there is a long-established tradition of professional restructuring advisory firms, investors and capital that provide funds to distressed companies, negotiation practices between corporates and creditors, and a wide range of restructuring methods that can be employed outside the courts."

In the United States and other overseas markets, it is common for both debtors and creditors to hire professional restructuring advisory firms to design and implement specific measures. In the area of restructuring that mobilizes private capital, Korea is also considered to lag behind major countries.

In recent years, there have been moves in the European Union and elsewhere to promote 'hybrid workout' models that combine the advantages of traditional court-supervised rehabilitation procedures and out-of-court workouts. In Korea, Pre-ARS, introduced by the Seoul Bankruptcy Court in 2025, is cited as a similar example—though its actual use remains limited. Lee Jungyeop, CEO of Law Firm Loh Jipsa and former presiding judge at the Seoul Bankruptcy Court, remarked, "Preventive restructuring schemes such as Pre-ARS or hybrid models are not functioning properly at present," and added, "There needs to be mechanisms that can compel a certain level of creditor participation."

Experts emphasize that proper corporate restructuring goes beyond simple financial support. Myung Eunjin, partner at Luxent, noted, "Injecting new funds or extending loan maturities is akin to using a ventilator or administering an injection to buy time," adding, "When a company reaches a critical situation, the problematic parts must be cut away and something new introduced. Such work involves refocusing the business portfolio and reallocating resources."

In other words, companies must overhaul their profit structure by withdrawing from loss-making businesses, selling non-core assets, reorganizing business portfolios, consolidating or reorganizing affiliates, restructuring personnel and organization, and improving debt structure. Many restructuring specialists cite Doosan Group as an exemplary case for successfully realigning its core businesses, moving from consumer goods to heavy industry and now to sectors such as nuclear power, robotics, and semiconductor materials. Especially as asset values decline and it becomes harder to attract new investors once a company falls into deep distress, experts repeatedly stress that business and financial restructuring must be tackled preemptively—before a crisis fully unfolds.

The financial authorities also share the view that restructuring efforts should move beyond mere liquidity provision toward tangible business improvement for companies. Previously, the Financial Services Commission indicated that policies like swift financial support should be strengthened from simple liquidity aid to packages combining debt restructuring, new funding, and management consulting in order to boost the likelihood of successful business turnaround.

Partner Myung added, "Companies must not stop at reducing business scale; they should also select the tasks necessary to enhance competitiveness. After business downsizing, it is crucial to examine how to reallocate the remaining resources, such as capital and workforce. Restructuring is not just about cutting back—it's a process of redirecting resources to core businesses," she advised.

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