Creditors of Daewoo Motor put the troubled South Korean carmaker into court receivership yesterday after unions refused to accept job cuts in return for new loans.
Daewoo Motor, which defaulted on loans of $77 million (€89.87 million) this week, has been struggling since creditors placed the company under a debt-restructuring programme last year.
Once South Korea's second largest carmaker with a production capacity of 2.1 million vehicles, the company has suffered losses of nearly $1 billion this year as sales have fallen sharply.
Workers rejected a proposal to cut the 19,000-strong workforce by a fifth in an effort to save costs and restore the carmaker to profitability by 2002.
The move came as creditors were trying to sell Daewoo Motors to General Motors of the US and its Italian partner Fiat. A proposed deal with Ford Motor collapsed in September.
The bankruptcy will probably delay any sale until early next year since court proceedings to liquidate the company are expected to take at least a month.
The collapse is likely to cause large job losses among 100,000 subcontractors who depend on Daewoo for their livelihood.
Creditors promised emergency loans to car parts suppliers to prevent a chain of bankruptcies.
Korea Development Bank, Daewoo Motor's main creditor, said GM would probably await court proceedings before deciding whether to proceed with negotiations with GM and Fiat.
GM, which had a 14-year joint venture with Daewoo until 1992, is now conducting due diligence inquiries.
In October, Daewoo Motor had asked creditors for $400 million to keep running until the end of the year, but they refused to provide the loans until the company adopted more restructuring measures, including job cuts and wage reductions.
Creditors said they were unwilling to provide more funds because the chances of repayment had decreased due to the carmaker's mounting financial problems.
Banks had already advanced nearly $2 billion to support Daewoo's operations in the past year.
Creditors reported in January that Daewoo had liabilities of Won17,900 billion against assets of Won11,880 billion, but the value of its assets has since fallen due to declining car sales.
Its five domestic factories are operating at below 60 per cent of capacity and it has cut production at its main overseas plants, including Poland, Ukraine and Uzbekistan.
Investors welcomed the impending bankruptcy by sending the Seoul stock market sharply higher in the past week in the belief that the nationalised banks appeared determined to end bailouts to failed companies.
