Daewoo declared bankrupt

Daewoo's collapse: Up to 27,000 jobs are at risk

South Korea's troubled Daewoo Motor Company has been officially declared bankrupt after defaulting on $155m of debt.

The South Korean cabinet has held an emergency meeting in the wake of the collapse of the company, which has been in takeover talks with General Motors.

Overnight talks with union leaders failed

Daewoo had held overnight negotiations with trade unions to try to secure agreement on the huge job cuts demanded by creditors before new loans would be considered.

"The union has refused to submit its consent to the restructuring plan - we can't wait any longer," said Yang Mun-suk, a spokesman for Daewoo's main creditor, the Korea Development Bank.

Debt freeze

Daewoo is now likely to be put under court receivership, which will freeze all debts.

New management will be appointed, and the future of almost 27,000 jobs is uncertain.

In the UK, about 800 workers employed in Worthing, West Sussex will be affected.

They had been told in September that there was no money to pay their wages, although they were eventually paid last month.

Daewoo officials said the company had no resources left to service $155m in debt this week. The company owes its creditors $10.6bn.

Deadline

Creditors had initially set a deadline of Tuesday afternoon for the firm to pay some of its outstanding debts, later extending the deadline until Wednesday morning.

Up to 52 South Korean companies are deemed to be "non-viable" by their creditors, putting up to 200,000 jobs at risk. The total number of unemployed in South Korea currently stands at about 800,000 or 3.65%.

Firms like Daewoo were caught out by the Asian financial crisis in the late 1990s, when a sudden economic downturn cut off the cash flow needed to service mounting debts.

South Korea's huge industrial conglomerates, the family-owned chaebol, had piled debt upon debt to finance their rapid expansion programmes.

Daewoo was rescued by its banks in August 1999 and a debt rescheduling programme began, aimed at selling off the firm or its assets.

Cutting the workforce

Last month, Daewoo put forward plans aimed at getting a fresh injection of funds which included cutting about a fifth of its workforce.

But the banks refused to sink more money into the company unless workers accepted the job cuts.

The unions insisted that creditors and management must pay wage arrears of $100m before they would contemplate job cuts and wage freezes.

The impact of Daewoo's collapse will be felt far beyond the country's borders.

As well as having a design centre in the UK, it operates factories in India, China, Poland and Uzbekistan.