Plunging sales and complete capital impairment; rehabilitation plan hinges on 'securing a buyer'

Vendors push back as settlement receivables are frozen; moves toward collective action

Investors blindsided by rehabilitation filing; Silicon2 says 'nothing was shared'

Online luxury platform Balaan has finally entered corporate rehabilitation proceedings.

According to industry sources on the 1st, Balaan CEO Choi Hyung-rok had denied rumors that the company was pursuing rehabilitation, but on the 31st of last month he finally admitted to the filing in an official statement. The company formalized the rehabilitation just four days after a related document leaked on the 26th and stirred controversy. Months of unpaid settlements to partner vendors culminated in a loss of trust and a liquidity crisis, leading to court receivership.

Alongside the rehabilitation filing, Balaan said it would seek to normalize its business through a merger and acquisition (M&A). "We will pursue an M&A with the business continuity of our vendors as the top priority," CEO Choi said.

Inside and outside the market, however, critics say both rehabilitation and an acquisition have little chance of becoming reality.

Given the accumulated debt, the damage to the brand's image and the backlash over unpaid settlements, the very precondition of the rehabilitation plan, 'securing a buyer,' is expected to run into obstacles from the outset.

The company's finances have already reached their limit. Balaan's revenue in 2023 was 39.2 billion won, a 56 percent plunge from the previous year (89.1 billion won). Its total equity stood at minus 7.7 billion won, a state of complete capital impairment. Even so, last month Balaan signed a 15 billion won convertible bond (CB) investment agreement with KOSDAQ-listed Silicon2. The first tranche of 7.5 billion won was paid in, with the remaining 7.5 billion won to be disbursed on the fulfillment of certain conditions, such as the share of direct purchasing and the achievement of operating profit.

But once the rehabilitation filing was formalized, Silicon2 could not hide its dismay, saying "nothing was shared with us in advance." Silicon2 holds a call option entitling it to acquire a 50 percent stake in Balaan, but concerns are being raised that the unpaid-settlement crisis could adversely affect the entire investment structure.

Once rehabilitation proceedings commence, all debts are temporarily frozen. This includes the commercial receivables (settlement payments) held by vendors on the platform, and whether and how they are repaid is then determined according to the rehabilitation plan. Roughly 1,300 vendors are currently estimated to be on Balaan, and industry observers believe unpaid settlements could amount to tens of billions of won.

The backlash from vendors is growing accordingly. In an open chat room of some 800 members, complaints poured in: "They told us to wait, and in the end they went into rehabilitation," and "Hundreds of millions of won in settlements are tied up, and recovery is practically impossible."

Some vendors are moving toward collective legal action, including criminal complaints and civil suits against CEO Choi Hyung-rok. "I'd say the odds of getting our settlement money back are below 1 percent," said an official at one vendor.

In legal circles, the prevailing view is that the rehabilitation proceedings will be hard to wrap up quickly. Attorney Shin Dong-woo of DAEON Law Firm noted, "As general unsecured creditors, the vendors rank low in repayment priority, so their actual recovery rate is likely to be low as well," adding, "Once rehabilitation begins, all claims are legally frozen, and for small and mid-sized vendors that were immediately recycling their settlement payments as cash, this could be a devastating blow to their liquidity."

Experts stress that for Balaan's rehabilitation to succeed, it must not only secure a buyer but also fundamentally restore trust and normalize its financial structure. Skeptics, however, note that at this point few companies are likely to express an intent to acquire it.

Suh Yong-gu, a professor of business administration at Sookmyung Women's University, said, "For a luxury platform, the core asset is not tangible property but intangible assets built on customers and data, and with the brand's image so badly damaged, the incentive to acquire it is low," adding, "At a time when even major offline retailers are struggling to sell, there will be almost no one willing to step up and acquire an intangible platform that is in rehabilitation."