The move effectively puts the key subisidiaries of the country's second biggest business group under the control of its creditor banks and will ensure a flow of funds to help them improve their health.

The 10 units are among 12 placed under an emergency debt rehabilitation scheme 11 days ago, but Daewoo Motor Co and Daewoo Corp will not be placed under bank receivership, the financial supervisory commission said.

"Creditor banks can expedite financial assistance and help corporate restructuring more effectively under bank management," FSC chairman Lee Hun-Jai was quoted by yonhap news agency as saying.

The banks will be able to dispatch their own officials to manage funds of the firms, other officials said.

The subsidiaries were targetted for receivership after creditors disagreed at the weekend on howto provide financial assistance to the units under an earlier debt rescue scheme.

The 10 units are Daewoo Electronics Co Ltd, Daewoo Electric Components Co Ltd, Daewoo Heavy Industries Co Ltd, Daewoo Capital Co, Daewoo Motor Sales Corp, Daewoo Telecom Co Ltd, Sangyong Motor Co, Keangnam Enterprises Co Ltd, Orion Electric Co Ltd and Diners Club Korea.

Seoul put the firms under debt rehabilitation schemes -- which involve the suspension of payment of debts and interest for six months and prepare the way for state cash injections -- in order to sell them off.

Many Daewoo affiliates have been facing trouble with their suppliers since mid-July, when the group was bailed out by creditors from a near default. That is because many suppliers either also face financial difficulties because of Daewoo and have to shut down production, or refuse to do business with Daewoo unless it is on a cash-payment basis, a spokesman for Daewoo Motor Co said.

Daewoo Motor, which is negotiating with US-based General MotorsCorp for a strategic alliance in its auto-making business, had to cut back production because of a shortage of auto parts, the spokesman said. Daewoo Motor's main factories outside Seoul, he said, ran at just 50 per cent to 60 per cent of planned levels last week, and he expected that to continue until early this week.

Delaying shipment

"We are trying to convince some of our suppliers to cooperate with us, and hope to solve the problem soon," the spokesman said. Already, he added, Daewoo Motor has postponed the planned export shipment of 12,000 cars in August because of trouble with suppliers.

In South Korea, many companies have traditionally paid their suppliers and contractors with promissory notes, through which they promise to pay a certain sum of money on a specified date.

Often suppliers will take those notes to banks or other financial institutions and redeem them for cash before the payment date -- usually receiving less than the amount stated on the note. But since Daewoo roup'sproblems have emerged, few financial institutions will redeem notes issued by Daewoo affiliates, causing an intricately balanced payment system to break down.

Daewoo Group's mounting woes resulted in 12 affiliates being placed under a debt-restructuring program in late August by the local creditors. In principle, such programs freeze the debt obligations of the companies involved for three months. But difficulty in ironing out details of how to proceed in restructuring debt of a dozen firms means those rules can change, leaving some firms struggling more than others.

The creditors' decision on Saturday leaves Daewoo Motor, Daewoo Corp., Daewoo Heavy Industries Ltd., Daewoo Telecom Ltd. and Daewoo Electronics Co. to scramble for cash elsewhere. Five other, smaller affiliates will get additional loans, but will now be asked to pay interest on guaranteed corporate bonds and commercial paper they issued.

Risking production difficulties

Daewoo Group-affiliated Daewoo Capital Co and the Diners Clubof Korea must pay back principal and interest on debt, which technically means they aren't in a debt-restructuring program. An official with a major creditor bank of Daewoo Group said those two finance companies could eventually get cut out of the debt-restructuring program.

A spokesman for Daewoo Group said he was concerned that unless loans were extended to help fund operations at the group's major affiliates, Daewoo Group will face difficulty in producing and exporting its goods. "We hope that the creditor banks in their future meetings will understand and help alleviate the problems," he said.

The official from Daewoo Group's creditor bank said creditors would continue to meet to adjust the debt program and find a consensus.

Internationally, Daewoo Group faces growing agitation from its foreign creditors, who aren't bound by the local debt program. Daewoo Group, whose foreign-currency-denominated debt was $9.94 billion at the end of June, is already facing two court suits -- one in Hong Kong and onein Belgium.

A Daewoo official on Friday confirmed that Bank Brussels Lambert, a Belgian unit of ING Group NV, had filed a suit for $10 million of payments due. "BBL has brought a suit against us, but we have been negotiating with the bank and are resolving the problem step by step," he said.

The other pending suit was filed in Hong Kong court on Aug. 13 by the local branch of Natexis Banques Populaires. The French bank is also said to be claiming $10 million in outstanding debt. Daewoo Group late last month sent a letter to its foreign creditors telling them that it may, in some cases, not be able to make interest payments on some of the debt. Prior to that letter, major foreign banks based in South Korea sent a letter outlining their requests to Daewoo Group, according to an official at a foreign bank. "We have had no official response to that letter," he said.

He added that foreign creditors of Daewoo Group were watching the court lawsuits, and that those cases could spur others to follow. "Before youknow it, everyone else will be moving to the courts," he said. "The mood is changing and gloom seems to be adding up."