Abolition? or Permanent Legislation? Recent Discussions on the Corporate Restructuring Promotion Act

Abstract

The sixth Corporate Restructuring Promotion Act (CRPA) was re-enacted as a temporary law effective for five years on October 16, 2018. As an out-of-court debt restructuring scheme, CRPA procedure is governed by the principle of majority or super-majority, not unanimity. Thus, under the CRPA, the claims of the dissenting creditors are subject to a restructuring plan when the council of financial creditors adopts one. Dissenting financial creditors who do not wish to be bound by the resolution can demand that their claims should be purchased. If they do not exercise this right of appraisal, they must follow the restructuring plan, according to which they may be forced to extend additional financing to the distressed company. Out-of-court restructuring schemes are still important because they can contribute to the early and preventive corporate restructuring. Furthermore, most distressed companies prefer out-of-court proceeding to a formal insolvency procedure supervised by the courts, because it can have a relatively minimal impact on the credit rating and trading reputation of the distressed company. CRPA procedure can also hinder the opportunistic behavior of creditors, which is the main problem of the workout procedure governed by the unanimity principle. The social harmfulness of the CRPA has not yet been proved. The CRPA increases the restructuring options from which the distressed companies can choose. Therefore the CRPA should be maintained and made as a permanent law instead of being abolished, and some amendments do need to be added. To strengthen the fairness of the procedure and the private autonomy of creditors, a process of confirming restructuring plans governed by the courts should be introduced, and any additional financing should be left to the voluntary wills of the creditors. Finally, to promote new financing in the CRPA procedure, the protection of additional voluntary financiers should be reinforced.