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Management of Bankruptcy Estates

Financial Institution Failures and Recovery of Public Funds

When an insured financial institution becomes insolvent, the KDIC provides financial assistance to protect depositors through equity investment, deposit payouts, etc. The failed institution is resolved by being sold to a third party or being closed after bankruptcy filing. In the case of financial institutions that are closed, all remaining assets are monetized in the course of bankruptcy proceedings and distributed to creditors in dividends. In exchange for the money provided for depositor reimbursement, the KDIC becomes a creditor of the failed financial institution. Based on the claim, the KDIC receives bankruptcy dividends and, thus, recovers public funds.

Overview of the Bankruptcy Procedure

The bankruptcy procedure is a legal process where the court seizes and liquidates the assets of the bankrupt institution and distributes the proceeds among its creditors according to priority. All bankruptcy procedures are regulated under the Debtor Rehabilitation and Bankruptcy Act and overseen by the court.

Upon the court’s bankruptcy declaration, all assets of the debtor, both at home and abroad, are transferred to the bankruptcy estate. Creditors are prohibited from taking action against the debtor and the court appoints a receiver to manage and dispose of the property.

The receiver is responsible for collecting as much money as possible quickly and distributing the proceeds to creditors. So, he/she takes much care to identify all assets as of the date of bankruptcy declaration and make sure nothing has been missed. More specifically, the receiver takes control of the bankruptcy estate’s cash, deposit accounts, title deeds and safes and closes the account books.

Afterwards, the receiver should have creditors file claims with the court within a determined time period to determine the amount of claims and pay dividends according to the seniority of their claims. In other words, assets of the bankruptcy estate are liquidated in as short a time period as possible to recover the highest possible amount of money depending on the characteristics of each asset class and distributed to creditors in bankruptcy dividends. The receiver continues this operation until there are no assets left to liquidate. After the last round of dividend payments is made, he/she requests the court to declare the closure of the bankruptcy proceedings. The court ends the bankruptcy process by making that announcement after checking to see if there are any remaining assets.

Management of Bankruptcy Estates

KDIC’s Management of Failed Financial Institutions

When making the declaration of bankruptcy, the court appoints a receiver. In most cases, the court appoints an attorney as receiver to conclude the bankruptcy proceedings faster. However, in the event of failure of a financial institution, it is mandated in the Special Act on the Management of Public Funds that the KDIC or one of its staff be named as receiver. This is aimed at a speedier and more efficient recovery of public funds.

By assigning experts on finance and claims recovery as receivers and using liquidation methods that are tailored to the characteristics of each asset group, the KDIC tries to maximize the value of asset recovery. It has also adopted a number of systems to improve the efficiency of bankruptcy estate management and reduce costs. The early closure system designed to bring the bankruptcy process to a speedier end is a good example.