[비즈한국] Megabox JoongAng, currently undergoing corporate rehabilitation, is accelerating the restructuring of its branches. Following a series of theater closures since the commencement of rehabilitation proceedings, it has been confirmed that the company recently filed a request with the court to terminate 14 lease and sublease agreements. As the termination of lease agreements could lead to the actual closure of theaters, concerns are rising that the number of branch shutdowns may increase.
Possibility of total theater count falling below 100
According to BizHankook's coverage, Megabox JoongAng filed a request with the Seoul Rehabilitation Court on the 21st of last month to terminate 14 unperformed bilateral contracts regarding leases and subleases. An unperformed bilateral contract refers to an agreement where both parties still have obligations to fulfill. According to the Debtor Rehabilitation and Bankruptcy Act, the administrator of a company in rehabilitation proceedings may terminate such contracts.
This request for contract termination raises the possibility of additional Megabox closures. As of the first half of this year, Megabox operated 111 branches nationwide (42 directly operated, 69 commissioned). Since entering rehabilitation, the Changwon Naeseo, Sinchon, and Dongdaemun branches have closed one after another.
If the 14 targets for contract termination all lead to the cessation of individual branch operations, the total number of Megabox branches could fall below 100. An industry insider stated, "I understand that this request for lease contract termination is related to directly operated branches."
This is not the first time Megabox has taken steps to terminate contracts. The company also applied for the selection of performance or termination of unperformed bilateral contracts back in August. By filing for the termination of 14 lease and sublease agreements just about a month later, it appears that store restructuring is moving into full swing.
BizHankook reached out to Megabox to ask about the background of the lease terminations and future restructuring plans, but did not receive a response.
8 billion won in unsettled payments for commissioned theaters nationwide… Megabox says, "Will resolve within this year"
On June 14, Megabox JoongAng, along with its parent company Contentree JoongAng, filed for the commencement of corporate rehabilitation proceedings with the Seoul Rehabilitation Court. This was due to a combination of worsening performance and accumulated financial burdens from the sluggish theater industry, compounded by the JoongAng Group’s liquidity crisis.
As the rehabilitation proceedings progress, concerns are growing in the film industry regarding unsettled payments. This is because payments that were outstanding prior to the commencement of rehabilitation have been classified as rehabilitation claims, preventing film distributors and commissioned theaters from recovering their dues. In principle, rehabilitation claims are restricted from individual repayment and must be settled according to a rehabilitation plan approved by the court. It is pointed out that if the recovery of these unpaid funds is delayed, the financial difficulties faced by distributors and commissioned theaters could spread to other partner companies.
The issue of Megabox's unsettled payments was also brought to the table during the National Assembly's audit of the Culture, Sports and Tourism Committee on the 12th. Representative Lee Jae-jung of the Democratic Party of Korea urged Han Sang-jun, Chairman of the Korean Film Council, saying, "This should not be viewed simply as a matter between Megabox and its creditors," and added, "Do not just wait for the court's decision; explore what can be done."
According to data disclosed during the audit, as of the end of August this year, a total of 28 cases of damage due to delayed settlements related to Megabox's rehabilitation proceedings had been reported, amounting to approximately 2.5 billion won. Of these, damage related to commissioned theaters accounted for 21 cases, or 75% of the total. However, the actual scale of damage estimated by the industry is larger than this. The Megabox Commissioned Theater Association has estimated that the unsettled payments for commissioned theaters nationwide reach approximately 8 billion won.
Commissioned theaters are cinemas managed by separate owners who have been entrusted with operations by Megabox. A portion of ticket sales generated through telecommunications company partnerships or easy payment services is settled to the commissioned theaters after passing through Megabox headquarters. However, because payments that were not made before the commencement of rehabilitation are tied up as rehabilitation claims, the recovery of funds is being delayed. Consequently, some commissioned theaters are reporting difficulties in securing operating funds such as rent, maintenance costs, and labor costs.
It is reported that Megabox has conveyed its position to pay the unsettled amounts to commissioned theaters within the year. A representative of the Megabox Commissioned Theater Association stated, "Megabox mentioned that they would pay the unsettled funds, which are currently tied up as rehabilitation claims, through the right of separation (hwan-chwi-gwon)," adding, "They said they would resolve it within this year, so we are waiting."
The right of separation (hwan-chwi-gwon) is the right to reclaim property owned by others from the assets held by a company in rehabilitation. If this right is recognized, unlike general rehabilitation claims, the owner can demand the return of their property without going through the repayment process of a rehabilitation plan. However, whether the right of separation can be applied to the unsettled funds of commissioned theaters and the specific method of payment have not been confirmed.
The association representative added, "Megabox has communicated that they are putting in efforts to resolve the issue of unsettled payments for commissioned theaters," and "The commissioned theaters are also waiting while hoping for a positive outcome."