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Daewoo Motor declared bankrupt

South Korea's troubled Daewoo Motor Co was on Wednesday officially declared bankrupt, creditor banks said.

"Daewoo Motor was officially declared bankrupt today. The decision was made at a meeting of creditor banks," an official of Daewoo Motor's main creditor bank, Korea Development Bank (KDB), said.

Daewoo Motor failed to meet payment of 44.5 billion won ($39 million) for two consecutive days, he said.

The bankruptcy was declared after the Daewoo Motor union refused to back down on job cuts.

Creditor banks had put back a deadline for declaring the country's second largest car firm bankrupt today to give more time to the company's union and management to narrow differences on 3,500 job cuts, some 20 per cent of the automaker's workforce.

The creditor banks or Daewoo Motor will now file for court receivership, an action to be accompanied by a freeze on all liabilities and claims on loans.

A chain of bankruptcies involving Daewoo Motor's suppliers is feared. It has 504 suppliers with 300,000 employees. Should the court decide on a receivership, it would appoint an administrator to try to turn the company around. If the court turns down the receivership request, assets of Daewoo Motor would be auctioned off and the proceeds divided among creditors.

The bankruptcy is also expected to hamper efforts to sell Daewoo Motor to General Motors. But the KDB has said talks with General Motors to sell Daewoo Motor would continue even if the company were placed in receivership.

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