First Vice Finance Minister Kim Beom-seok, left, speaks during an emergency task force meeting regarding payment delays by cash-strapped TMON and WeMakePrice at the Goverment Complex Seoul, Monday. Yonhap
Cash-strapped e-commerce platforms TMON and WeMakePrice applied for corporate rehabilitation, Monday, amid a massive cash crunch that has caused delays in payments to sellers and refunds to customers, according to the Seoul Bankruptcy Court and the companies.
The Ministry of Justice imposed an overseas travel ban on Ku Young-bae, founder and CEO of Singapore-based Qoo10 that owns the two e-commerce platforms, on suspicions of fraud, embezzlement and breach of trust.
The companies said their liquidity crisis is so severe that their financial condition cannot be restored through their own self-rescue measures.
Corporate rehabilitation is a system in which the legal relationships of various stakeholders are adjusted under court supervision when it is deemed that continuing the business of a financially distressed company has more value than liquidating it.
The court will review the applications and decide whether to begin rehabilitation procedures for the two online marketplaces based on the determination of their public interest value. This process usually takes about a week.
The two firms are currently facing a severe liquidity crisis and have failed to pay money owed to sellers. This has led many unpaid sellers to abandon the platforms, which in turn has caused delays in processing refunds for consumers who purchased products and services through them.
According to the Ministry of Economy and Finance, the unpaid bills identified so far are estimated at about 210 billion won, but the amount is feared to snowball, considering transactions whose settlement dates are approaching.
A man passes by TMON's headquarters in Gangnam District, Seoul, Monday. Yonhap
Corporate rehabilitation procedures result in all bonds issued by the two firms being frozen until the court decides on whether to commence receivership, making it more difficult for sellers to receive their payments.
If the rehabilitation applications are not accepted and the two file for bankruptcy, it will become even more difficult to compensate the affected parties.
Following the huge damage to sellers and customers and the companies' insufficient countermeasures, the police asked the justice ministry to ban Ku and the heads of Qoo10 Korea, TMON and WeMakePrice from leaving the country, as affected customers demanded an investigation. The ministry, in an unusually swift response, issued the travel ban later in the day.
The prosecution also formed a special probe team over the case.
Amid growing concerns, the government has decided to inject at least 560 billion won ($405.5 million) in liquidity to support small- and medium-sized enterprises and small business owners affected by the crisis.
The government has also asked banks, insurers, credit card companies and other financial institutions, including policy banks such as the Korea Development Bank and the Industrial Bank of Korea (IBK), to extend the maturity of existing loans and postpone repayments for up to one year to help address the financial difficulties faced by the affected businesses.
"The ultimate responsibility for this situation lies with TMON and WeMakePrice, which failed to pay money earned by sellers," First Vice Finance Minister Kim Beom-seok said during an emergency task force meeting of related authorities, including the Financial Services Commission (FSC), the Financial Supervisory Service (FSS), the Fair Trade Commission and the Ministry of SMEs and Startups.
"The government, however, cannot stand by while innocent consumers and sellers suffer. So, we will mobilize all available resources to minimize the damage and provide support."
According to the vice minister, the FSC, the country's top financial regulator, will provide emergency funds by establishing a new guaranteed loan program worth about 300 billion won through the Korea Credit Guarantee Fund and the IBK.
This initiative aims to support small- and medium-sized enterprises experiencing a liquidity crisis by enabling them to access new funds at lower interest rates.
The SMEs ministry will provide policy loans amounting to 200 billion won to support the affected small businesses and their owners by utilizing the emergency management stabilization fund programs of the Korea SMEs and Startups Agency and the Small Enterprise and Market Service.
An additional 60 billion won will be available for travel agencies hit particularly hard by the payment delays.
Victims of payment delays by TMON and WeMakePrice protest in front of the headquarters of Qoo10 in Gangnam District, Seoul, Sunday. Yonhap
To address the damage caused to consumers, financial authorities plan to expedite refund processing, including credit card cancellations, by closely collaborating with travel agencies, credit card companies and payment gateway firms.
To ensure prompt redress for victims, the FSS and the Korea Consumer Agency (KCA) are operating dedicated complaint reception centers. Additionally, the KCA will receive applications for collective dispute resolution from Aug. 1 to 9 from affected consumers in the travel, accommodation and airline sectors.
Reiterating its demand for responsible solutions from the two online marketplaces, the finance ministry vowed to conduct thorough inspections to determine if there were any legal violations.
"We will also review related laws and regulations to develop measures to prevent the recurrence of a similar incident," Kim said.