In the corporate sector, overall results of restructuring have been quite positive. The debt-equity ratio of the manufacturing sector has improved dramatically, from 396% in late 1997 to 104% in December 2004. And the "too-big-to-fail" myth disappeared while many of the 30 largest conglomerates were sold, merged or liquidated. Rule setting for transparent and responsible management has been carried out and reinforced through the appointment of outside directors, the introduction of audit committees and the obligatory publication of combined financial statements.
Corporate restructuring of weak companies has been rapidly pursued under the initiative of creditor banks. For example, Daewoo Motors and Hanbo Steel were successfully acquired by foreign capital. Since the introduction of work-out programs, many financially troubled companies have been normalized.
Progress of work-out procedure - A total of 83 companies have gone through the program.
- By December 2005, 60 companies successfully completed the program, and 19 companies were promptly liquidated.
- Now four remaining firms are in the progress of implementing the program.
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The Corporate Restructuring Promotion Act was enacted in September 2001 to expedite prompt and transparent corporate restructuring. In addition, the Constant Corporate Restructuring System has been under way since March 2001, which allows each creditor bank to periodically evaluate the credit risk of debtor companies. The Consolidated Insolvency Law was enacted in March 2005 and took effect in April 2006.
The purpose of corporate reform is to enhance the productivity and growth potential of the Korean economy by establishing an efficient and fair market.
Corporate structural reform will continue based on the following principles. First, to enhance management and accounting transparency, it is necessary to focus on constructing a market-friendly oversight system, gaining the trust of market participants. Second, corporate reform should be pursued consistently. Until management transparency meets global standards, corporate restructuring should be promoted on an on-going basis.
Steps to bolster transparency and soundness of corporate governance will be carried out and reinforced. The management monitoring system will be strengthened within the companies by enhancing the role of the audit committee, the board of directors and the rights of minority shareholders. To root out illegal practices such as deceptive accounting and stock price manipulation, class action lawsuits for the securities sector was introduced in January 2006.
The effectiveness of private companies' internal and external check systems will be assessed in a comprehensive manner before replacing the current equity investment ceiling system with a voluntarily-set regulatory system. The ceiling system has been kept in place to prevent abuse of managerial power by majority shareholders.
