Homeplus headed for bankruptcy as court terminates rehabilitation proceedings

A court has ordered the termination of Homeplus's court-led rehabilitation proceedings, effectively setting the embattled retailer on a path toward bankruptcy.

The Seoul Bankruptcy Court's Fourth Division, presided over by Chief Judge Jeong Jun-young and Senior Judge Park So-young, ruled Thursday that Homeplus's liquidation value exceeds the value of continuing to operate the business.

Earlier, the court had authorized Homeplus to draw up a structural-reform rehabilitation plan centered on the full or partial transfer of its business operations. The plan called for closing unprofitable stores, transferring business units and pursuing mergers and acquisitions.

In explaining its decision to terminate the proceedings, the court said that while the sale of the Homeplus Express division had been completed, sales had declined as the remaining business units continued operating without a successful M&A deal. At the same time, public-interest claims — including wages, trade payables and taxes — had been surging.

"Under these circumstances, a minimum of about 200 billion won ($129 million) in operating funds would be needed to continue running the company and carry out the rehabilitation plan, yet that amount has not been secured," the court said. "Because there is no prospect of executing the rehabilitation plan, we are terminating the proceedings."

The court had already extended the deadline for submitting a rehabilitation plan twice. The original deadline of March was pushed back to May, then extended again to Thursday.

Homeplus submitted a revised rehabilitation plan on June 30, proposing to restructure its hypermarket operations around 67 core stores and improve profitability through store closures, workforce streamlining and asset sales. However, the company failed to present a financing plan for the 200 billion won the court had required.

Homeplus may file an immediate appeal against the termination order within 14 days. If the company does so and demonstrates valid grounds, the appeal could be accepted. In that case, the Seoul Bankruptcy Court could vacate its own termination order and schedule a creditors' meeting to deliberate and vote on the rehabilitation plan.

A last lifeline remains, however. The court said that because the termination was ordered solely on the grounds that the rehabilitation plan could not be executed due to insufficient operating funds, an immediate appeal filed after Homeplus secures the necessary financing could be recognized as having valid grounds. Should that happen, the court indicated it could vacate the termination order on its own initiative before the case is transferred to a higher court and set a date for a creditors' meeting to review and vote on the plan. In short, securing the 200 billion won would open the door to reversing the termination.