By Lee Kyung-min – The Korea Times
The number of bankruptcies filed by local businesses and individuals has soared after the coronavirus pandemic pounded their already shaky financial condition by reducing domestic demand and exports further amid the drawn-out U.S.-China trade feud, data showed Monday.
Economists called for “unprecedented, non-conventional measures” including prompt refinancing, corporate tax cuts and deregulation to prevent the economic fallout from the COVID-19 outbreak from escalating into a systemic risk that could collapse the entire financial market.
According to data submitted from the Supreme Court to Rep. Joo Kwang-deok of the United Future Party, the number of bankruptcies filed with the courts in February by individuals stood at 3,741, up 19.2 percent from a year earlier.
Those filed by corporate entities reached 80, up 12.6 percent.
Also on a steep rise is the number of individuals and firms applying for self-rescue plans. The number of those filed by individuals spiked to 7,387 in February and 66 by businesses, up 9.9 percent and 6.4 percent, respectively, from the same month last year.
“Low-income, low-credit workers are most vulnerable,” said Yonsei University economist Sung Tae-yoon.
“They would not have been pushed towards liquidation as long as they held a job and earned income to pay off debt. But many of them have been laid off or put on forced unpaid leave, meaning they will have no opportunities any time soon unless the virus is contained dramatically fast.”
Under the less invasive court-supervised self-rescue plan, a designated court helps reorganize debts for the debtor to pay a certain amount and the remaining amount be forgiven. This is largely considered a precursor to seeking liquidation, whereby the prospect of solvency is too low or there are no job opportunities for the debtor.
Of particular concern is the rapid month-on-month increase in bankruptcies.
The number of bankruptcies filed by individuals jumped 14.2 percent in February from January, while those by businesses were up 12.6 percent.
This is highly unusual given February usually sees the lowest number of such requests mostly because lawyers are reluctant to have their cases initiated out of fear that a presiding judge could be changed mid-trial in a regular reshuffle conducted by the National Court Administration (NCA), the administrative body under the Supreme Court.
Even more troubling is that some districts saw the number filed in the first 11 days of March already jump over 54 percent from a year earlier.
Individual requests filed with Incheon District Court reported a 54.4 percent year-on-year increase, followed by Daejeon District Court (49.2 percent).
In areas of Daegu and North Gyeongsang Province, the hardest hit by the fast-spreading virus, the number filed by individuals between March 1 and 11, jumped 17.1 percent.
More people are feared to be closer to the edge because the number of self-rescue plans soared 31.8 percent in the same period.
Soon to be followed are businesses hit by the double whammy of a liquidity shortage and plunging sales amid the virus spread, according to Seoul National University economist Lee In-ho.
“Small- and medium-sized enterprises (SMEs) in the business of eateries, lodgings and retail are the first to be pushed to the edge of the economic cliff,” Lee said.
Equally in dire straits are large conglomerates including those in the auto, airline, logistics and tourism industries, all of which need prompt liquidity to avoid what could decimate the livelihoods of many more people.
“The government needs to make a course correction to revise the previous consumption-boosting voucher issuance and find ways to inject liquidity into the market for both small and large firms so they can maintain lines of credit. A temporary corporate tax cut could also be an option,” said Lee.