[Summary] Homeplus rehabilitation case terminated, raising fears of massive job losses and a domino effect on partner firms

[Financial News] The Seoul Bankruptcy Court made the unusual decision not to extend Homeplus's rehabilitation proceedings and instead ordered their termination. The ruling appears to reflect the court's view that there is no viable solution in the current situation, even after considering the risk of mass layoffs among employees and partner-company workers caused by store closures. A fresh rehabilitation process through an immediate appeal within 14 days remains possible, but analysts say it is unlikely to work because the business continues to pile up losses even if operations are maintained.
According to the legal community on the 3rd, the 4th Division of the Seoul Bankruptcy Court, headed by Judge Jung Joon-young, decided to terminate Homeplus's corporate rehabilitation proceedings that day. It has been 16 months since Homeplus applied for court-led rehabilitation in March last year.
Homeplus submitted a revised rehabilitation plan on the 30th of last month, proposing to reorganize its large-format stores into 67 core locations to improve profitability. However, the court is believed to have concluded that the plan had little chance of success, citing the lack of a concrete funding plan for the minimum 200 billion won needed to carry it out.
The court had already extended the deadline for approving the rehabilitation plan once, from March 4 to May 4 this year, and then postponed it again until this day after prolonged deliberation. Rehabilitation proceedings are supposed to be decided within one year of the start date, though they can be extended by up to six months if unavoidable circumstances exist. Even with the extension, the proceedings could have continued until September this year, but the court determined that continuing them in the current state would not be effective.
Homeplus still has the option of trying again, but the chances are slim. Under the Debtor Rehabilitation and Bankruptcy Act, it may file an immediate appeal within 14 days. However, the funding problem would need to be resolved first. In that case, it could also seek a new rehabilitation process through a reapplication.
Even if financing is secured, however, it would only be a temporary fix. The company is not structured to generate profits through normal operations, so losses would continue to accumulate even if business goes on.
Lee Jeong-yeop, CEO of the law firm Rojibsa, said, "To file for rehabilitation again, there must be a changed circumstance," adding, "If the termination of the rehabilitation process is finalized, bankruptcy is highly likely."
He added, "If the case moves to bankruptcy proceedings, employees' wages and severance pay will be repaid first, followed by secured creditors in order," and "if delay interest becomes too large in bankruptcy, only secured creditors may be repaid, while trade creditors face a high risk of receiving nothing."
With the court's suspension of Homeplus's rehabilitation proceedings, concerns are growing over a potential employment shock affecting as many as 100,000 people, including internal staff, partner companies, and farmers, along with a domino effect across related industries. At present, around 20,000 jobs are expected to be directly hit, including Homeplus's directly employed workers and partner laborers. If the rehabilitation process is halted and Homeplus enters bankruptcy proceedings, those jobs would disappear as stores nationwide shut down. Local farmers and livestock, fishery, and agricultural suppliers that have provided products to Homeplus are also expected to suffer significant damage. The unpaid delivery payments owed to 150 small and medium-sized suppliers and small businesses average 774 million won per company, and they are expected to have virtually no chance of recovering the money.
Politicians and others are calling for government intervention in the Homeplus crisis, but the chances of that happening are low. It is also impossible for a policy bank such as KDB to acquire shares and operate the company, as in the past Daewoo Shipbuilding case. In Homeplus's case, the rise of online markets and its loss of ground in competition among large discount chains have left it with little real business viability, making its decline seem almost inevitable.
A source in the legal community said, "Even if the government steps in, there is no legal basis," adding, "In the end, even if a special law were enacted and a government-financed institution such as KDB took it over, the structure is effectively unable to repay its debts, so it could amount to a breach of fiduciary duty."

hwlee@fnnews.com Lee Hwan-ju Reporter