Debt-ridden automaker SsangYong Motor is planning to file for a prepackaged bankruptcy, but creditors have not yet said whether they will allow this to happen.

Yea Byung-tae, SsangYong Motor’s chief executive, asked a group of suppliers on Thursday (January 28) to extend payment deadlines and sought their consent for the company’s plan to file for a prepackaged bankruptcy, according to sources.

The embattled automaker applied In December last year for an autonomous restructuring support program, a court-designed process under which it would be allowed to find a solution of its own by February 28.

SsangYong initially expected to meet that deadline, with growing hopes that talks on a sale of the company between its largest shareholder Mahindra & Mahindra and U.S. automobile distributor HAAH Automotive Holdings would gain momentum. But negotiations have been slow, with little signs of a breakthrough, prompting the firm’s decision to seek a prepackaged bankruptcy filing, industry watchers said.

A prepackaged bankruptcy plan is a program that allows a debtor to restructure its debt in cooperation with creditors to pursue a reorganization plan. But SsangYong first needs the consent of creditors holding more than half of its debt.

Whether HAAH actually has a desire to buy the company will likely affect the decision of creditors, industry watchers said. HAAH reportedly has yet to submit a letter of intent that would indicate a preliminary commitment to acquire the company.

“SsangYong will also need to show creditors that HAAH has the financial capability for the acquisition to convince them (on a prepackaged bankruptcy plan),” an industry insider said.

Sources expect SsangYong to go through the process of estimating its values as a going concern and in a potential liquidation before filing for a prepackaged bankruptcy. If the company’s liquidation value is higher than its worth as a going concern, this could complicate negotiations between the company and creditors.

SsangYong will have to go through rehabilitation proceedings that will be supervised by the bankruptcy court if it fails to obtain consent from creditors by February 28. (Reporting by Seon-young Kim)

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