SMEs to be put under creditor-led debt workout

Small and medium enterprises that are unable to meet their debt obligations worth more than 3 billion won ($2.5 billion) and fail to meet adequate credit standards will need to go through creditor-led workout programs, the top financial regulator announced Tuesday.

The Financial Services Commission said that an enforcement ordinance to the Corporate Restructuring Promotion Act has been submitted to a Cabinet council for legislation.

“The ordinance is expected to be enacted next month after further reviews by the Ministry of Government Legislation and the Regulatory Reform Committee by the end of this month,” the FSC said in a press statement.

This comes as the National Assembly approved the act -- more frequently referred to as the debt workout law -- expanding the creditor-led corporate restructuring program, not only for conglomerates but also for SMEs, early this month amid the economic slowdown.

Previously, large companies that were not able to repay their debt of more than 50 billion won were put under the workout program.

With the economy facing lackluster growth amid slow exports and employment, the financial authority saw the urgency to expand corporate restructuring to prevent a potential debt crisis.

The ordinance includes articles clearly indicating the types of debt companies are unable to pay -- bank loans, commercial papers and leases on facilities and equipment.

Those that fall under the debt workouts will regularly need to go through credit and progress screenings by creditor banks and financial regulators.

The FSC has not included small companies that are unable to pay debt worth less than 3 billion won in the bill as they will have limited impact on the economy.

(hkp@heraldcorp.com)