Daewoo Declares Bankruptcy After Union Rejects Layoffs

Creditors of the long-ailing Daewoo Motor Co. said the auto maker officially declared bankruptcy today after its hard-boiled labor union rejected a restructuring plan calling for layoffs.

The union’s rejection of the plan is expected to leave creditors at a disadvantage as they try to sell Daewoo to General Motors Corp.

“The union has refused to submit its consent to the restructuring plan. We can’t wait any longer. Daewoo’s bankruptcy has become formal,” said Yang Mun-suk, a spokesman for Daewoo’s main creditor, Korea Development Bank.

Creditors said the next expected step is to put the company under court receivership--a process that will install new management and freeze all debts.

The auto firm was to have been officially declared bankrupt early today after it defaulted on $78 million in commercial papers for two straight days.

But after overnight talks with management broke down, the union called a last-minute meeting of its own to discuss its course of action. That meeting ended without consent to the restructuring plan, which would have prevented bankruptcy.

The centerpiece of Daewoo’s restructuring program would have been layoffs of 18% of the union’s 18,000 members. The union rejected the creditors’ demand.

Court receivership will hinder creditors’ ability to negotiate with GM, which has been seeking to purchase the South Korean car maker since September.

Creditors worry that the sale could be delayed because GM might offer a lower price.