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[ Legal Issues in Anbyeon] Hope for Struggling Startups: A Leap Forward Strategy Through Rehabilitation M&A
A recent visit to the rehabilitation court reveals a different landscape than before. Instead of traditional manufacturing or construction companies, companies like platform companies and deep-tech startups that once dominated the media and investment markets are now filing for rehabilitation. Luxury goods purchasing platforms, fresh food distribution startups, OTT services, fashion platforms, and even AI deep-tech startups—startups across e-commerce, content, food tech, and deep tech are all filing for rehabilitation. The challenging economic climate has also left the startup ecosystem in dire straits, a stark contrast to the seemingly rising KOSPI index. Examining the process by which companies file for rehabilitation reveals a wide range of outcomes, with some successfully rehabilitating, others being acquired through rehabilitation M&A, and others ultimately declaring bankruptcy. Ultimately, the key question boils down to how the rehabilitation process is designed and what strategies are employed.
Corporate rehabilitation M&A is not simply a transaction to acquire a struggling company at a low price. It is a complex M&A structure that simultaneously balances the interests of creditors, shareholders, and new investors within the rehabilitation process under the Debtor Rehabilitation and Bankruptcy Act, under the supervision and management of the court. While a typical M&A involves the parties agreeing on the price and terms, a rehabilitation M&A must be consistent with a strategic rehabilitation plan that will revitalize the company, obtain the consent of a majority of creditors, and then obtain court approval. The Seoul Rehabilitation Court actively permits "pre-approval rehabilitation M&A" through its practice guidelines, where a sale is conducted before the rehabilitation plan is approved. It also institutionalizes a "stalking horse" structure, where a public bid is held with the right of first refusal granted to the first potential buyer. This is designed to function not as a simple legal process for companies facing rehabilitation difficulties to buy time, but as an M&A platform for finding new funding and a new owner. This is a significant change.
A relatively textbook example of how startup restructuring M&A can actually succeed is the case of a startup called "Plating." Plating, a company cafeteria subscription service, filed for rehabilitation with the Seoul Rehabilitation Court on October 19, 2023, and the rehabilitation process concluded on May 7, 2024. After approximately seven months, the company emerged from the court proceedings and is now accelerating its efforts to normalize its operations. Key to the recovery was the investment and acquisition structure achieved within the rehabilitation process. During the rehabilitation process, Plating signed an acquisition agreement with an investment fund specializing in restructuring. This fund paid approximately KRW 540 million in stock (M&A proceeds) to acquire 100% of Plating's shares, becoming its largest shareholder. It may be heartbreaking for investors to see that a company that had previously received billions of won in investments was sold for a relatively low price of 540 million won in a restructuring M&A. However, thanks to a realistic valuation reset and quick decision-making, Plating was able to return to being a “living company” in a short period of time.
In contrast, the Jeongyuk-gak and Chorok Village cases are far more complex. Jeongyuk-gak attracted over 100 billion won in investment by leveraging its IT-based fresh food logistics and brand, and in 2022, it acquired the organic food franchise Chorok Village, drawing attention as a "symbolic transaction in which a startup acquired a major brand." However, due to excessive acquisitions and borrowing, coupled with an economic downturn and rising raw material costs, both companies filed for rehabilitation proceedings in the summer of 2025, and the court granted them the same date. Both companies received pre-approval for M&A, appointed an accounting firm as the lead manager, and began searching for a buyer.
On the surface, it appears the company is moving towards normalization through a rehabilitation M&A. However, in the case of Chorok Village, another transaction occurred. A financial institution secured its majority shareholder status by exercising its lien based on the collateral provided during the acquisition. This share was then sold to a third party, effectively transferring Chorok Village's stake to the new investor. While the rehabilitation process is still ongoing, the sale of shares through the lien appears to have occurred first, significantly complicating the situation and creating entangled interests. The new majority shareholder claims, "We will normalize the company on our own," while the administrator and creditors insist, "We will seek better terms through a rehabilitation M&A." It remains unclear where the company will reach a compromise.
Cases like Newnex, which operates the platforms Balan, Watcha, and Fashion, are currently in progress. Balan entered rehabilitation proceedings in 2025 and, using pre-approval M&A and stalking horse strategies, selected Asia Advisors Korea (AAK), a family office investment firm, as a conditional acquirer. This structure allows the rehabilitated company to secure a minimum acquisition price and terms and then seek better terms through a public bidding process. However, a successful rehabilitation M&A can only be achieved once all procedures, including rehabilitation plan approval, creditor consent, and full payment of the acquisition price, are completed. Watcha and Newnex are also preparing for rehabilitation and M&A simultaneously, but due to competition in the OTT market and the limitations of the fashion platform structure, it is likely to take considerable time for the rehabilitation M&A to be completed. Not all rehabilitation applications lead to rehabilitation M&A. If a buyer is not found after a certain point, the rehabilitation process will be terminated, effectively leading to bankruptcy proceedings, as with WeMakePrice.
Juxtaposing these various examples reveals a general outline of which startups are most likely to succeed in a restructuring M&A. First, timing is a factor. Companies that acknowledge the crisis at a relatively early stage, like plating, and package the restructuring process and M&A together have an advantage in terms of speed and stakeholder coordination. Conversely, companies that enter restructuring after having already incurred significant debt and undertaken excessive acquisitions and are cash-strapped are more likely to end up with complex structures, like Jeongyuk-gak and Chorok Village. Second, the presence of a "viable entity" within the company is crucial. Buyers are more likely to focus on the potential cash flow generation, transferable technology, data, and customer base, and potential for revenue growth, rather than the financial statements themselves. Even with a restructuring label, if a company retains a clear business model and competitiveness in a specific segment, there will inevitably be an acquisition target. Third, the speed with which creditors and existing investors recognize the reality of the situation is crucial. In a restructuring M&A, past valuations become largely irrelevant, and the valuation is re-evaluated based on current figures and the market. If you try to protect past investments, the acquirer will likely abandon the company, and the rehabilitation process will likely stall. Therefore, the management (founders, etc.), investors, and creditors of startups entering rehabilitation proceedings all need to accurately and quickly assess the current situation.
The preparation procedures and methods that founders and investors must follow also stem from this point. Even before a liquidity crisis appears, founders should develop contingency plans and prepare various scenarios, including restructuring, asset sales, partial M&A, and rehabilitation M&A. A minimum of nine to twelve months is required to develop a realistic timeline for preparing the rehabilitation application, obtaining the court's initiation order, selecting a lead manager, preliminary and main bidding, due diligence, contracts, and rehabilitation plan approval. They should organize the company's key indicators and customer data to clearly demonstrate "what is being acquired" and "what salvageable entities can be acquired." They should also be able to explain the procedural and economical comparisons of bankruptcy, rehabilitation, and rehabilitation M&A scenarios to existing investors. Furthermore, founders should map out how long they will remain in management and at what point they will step down or transition to a new role.
Rehabilitation M&A isn't a magic bullet that erases failure; it's a technique for managing failure and a strategy for reviving a dying company. Some companies, like Plating, quickly navigate legal procedures by securing new investors. Others, like Jeongyuk-gak and Chorok Village, find solutions while navigating the complex web of collateral execution, rehabilitation M&A, and autonomous normalization. Some platform companies, like Balan, Watcha, and Newnex, are still seeking buyers. Others, like WeMakePrice, ultimately fail to secure approval for their rehabilitation plan and a buyer, ultimately leaving the market. The key is not whether to pursue rehabilitation, but rather how and what to plan within it.
Change is painful, but staying the same is even more painful. For startups that can no longer sustain themselves under their current structure, rehabilitation and M&A should not be considered a shameful last resort, but rather an option for another leap forward.
Inquiry for information
Attorney Heechul Ahn 010-9135-4773 / heechul.an@dlglaw.co.kr
Simharu, Senior Manager, PR Marketing Team 010-9458-6068 / ru.sim@dlglaw.co.kr
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