South Korea’s large supermarket chain Homeplus shut down the operations of its headquarters and all 67 stores on July 13, citing a depletion of operating funds—so much so that even facility maintenance and management could not be sustained. Since the 200 billion KRW working capital set by the Seoul bankruptcy court could hardly be in place before July 20, the likelihood that Homeplus will move into “related bankruptcy” proceedings is increasing.
Explanation of “related bankruptcy” procedures: differences from ordinary bankruptcy and creditor protection mechanisms
According to reports, “related bankruptcy” means that the court combines the termination of the rehabilitation process and the bankruptcy declaration into a single case. Its advantage is that it continues to follow the creditor priority order established during the rehabilitation period, avoiding the confusion caused by the “first to seize gets priority” principle in ordinary bankruptcy.
If, after the rehabilitation process is terminated on the 20th, the parties handle matters separately, the protective measures provided during the rehabilitation period will become invalid, and those who file for bankruptcy first or seize assets first will gain priority.
Industry insiders said, “Given the enormous amounts of claims and the need to re-determine priority order, ordinary bankruptcy procedures will inevitably cause confusion, and the court is very likely to decide on its own to initiate related bankruptcy.”
Creditor distribution priority order: employee wages, public-interest claims at 930 billion KRW
According to reports, the order for distributing claims from Homeplus’s bankruptcy estate is as follows:
First priority: costs to maintain operations of the bankruptcy estate and asset disposition expenses
Second priority: employees’ three months of wages, three years of severance pay, national taxes and local taxes, and four types of social insurance premiums (June unpaid wages total 33 billion KRW, affecting about 11,400 employees; the government provides replacement subsidies up to 21 million KRW per person)
Public-interest claims: debts incurred after the start of reorganization, totaling about 930 billion KRW (including trade claims of 794 billion KRW and taxes and public expenses of 82 billion KRW)
Reorganization claims: debts incurred before the start of reorganization, totaling 2.6691 trillion KRW; the repayment priority moves back after the priority order payments
Merritz Financial Group controls 62 stores through a trust and has pledged assets of about 1.5 trillion KRW. Even if the company declares bankruptcy, the bankruptcy trustee cannot use these pledged assets directly; instead, Merritz disposes of them through public auctions, and only after all secured claims are satisfied will any remaining funds enter the bankruptcy estate.
FAQ
What is “related bankruptcy,” and how is it different from ordinary bankruptcy?
According to reports, related bankruptcy means that the repayment order set during the rehabilitation process remains valid; the court directly appoints a bankruptcy trustee to sell assets and distribute the proceeds according to that order. In ordinary bankruptcy, after the rehabilitation process ends completely, creditors must apply for bankruptcy again, and the protective measures during the period become ineffective. Those who seize assets first may obtain an unfair priority, causing confusion.
What role does Merritz Financial Group play in Homeplus’s bankruptcy case?
According to reports, Merritz holds pledged assets related to 62 Homeplus stores through a trust arrangement, accounting for about 99% of the company’s total assets. The pledged assets are valued at about 1.5 trillion KRW. Even if the company declares bankruptcy, the bankruptcy trustee cannot use these assets directly; instead, Merritz, as the trustee, determines when and under what conditions to dispose of them through public auctions. Industry insiders said that if Merritz disposes of assets carelessly, it may trigger public backlash, and it is expected to make decisions after consulting with the bankruptcy trustee.
How will employees and partner merchants affected by Homeplus’s bankruptcy receive compensation?
According to reports, the government will provide replacement subsidies of up to 21 million KRW per affected employee to those whose wages are delayed, along with low-interest living loans at an annual percentage rate (APR) of 1.5% (up to 10 million KRW per person). For partner businesses, the Korea Small and Medium Business Market Service Center will provide preferential emergency business stability funding interest rates, and the Korea Credit Guarantee Fund (KODIT) has also included affected small and medium-sized enterprises in a special guarantee coverage for crisis response. Banks will provide each partner business with emergency operating capital loans of up to 500 million KRW.
