South Korea has recovered just over 2% of the debt owed by borrowers whose debt relief under the New Start Fund was canceled after they deliberately hid assets. For some, nearly two years have passed since their agreements were voided, yet most of the principal remains uncollected, prompting calls to make follow-up enforcement more effective.
According to a settlement review report on the Financial Services Commission prepared by the National Assembly's National Policy Committee, released on the 7th, 16 borrowers had their New Start Fund agreements canceled for fraudulent conveyance — such as concealing or gifting assets — as of June this year, with debt principal totaling 1.66 billion won. Of that amount, only 40.2 million won has actually been recovered, or 2.4% of the principal.
By the year the agreements were signed, 39 million won was recovered out of 1.15 billion won in canceled principal for those who signed in 2023. For 2024 signers, 200,000 won was recovered out of 130 million won, and for 2025 signers, 1 million won out of 380 million won. Even for the five borrowers whose agreements were canceled in 2024, the first year such cancellations took place, most of the principal remains uncollected.
Launched in 2022, the New Start Fund is a debt restructuring program that buys nonperforming loans from small business owners and the self-employed struggling in the aftermath of COVID-19, then reduces the principal or lowers interest rates. Because debt relief under the loan-purchase structure is calculated based on net debt — liabilities minus assets — critics have pointed out that borrowers have an incentive to hide assets to enlarge the write-off.
A Financial Services Commission official said fraudulent conveyance cannot be detected all at once under a fixed set of criteria, and that each suspected case requires an individual review of how and why assets were concealed, which takes considerable time. The official added that the Korea Asset Management Corp. has set up a separate unit and is investigating aggressively.
Kwak Hyun-jun, chief expert adviser to the National Policy Committee, said the loan-purchase restructuring program writes off more than 70% of debt principal on average, and that with the average principal per borrower engaged in fraudulent conveyance at about 100 million won, the scale of the illicit gain is substantial. Authorities should carry out thorough asset investigations of applicants for debt restructuring and move quickly to recover claims, establishing substantive sanctions, the adviser said.
