SEOUL - CHINESE-OWNED Ssangyong Motor of South Korea, hit by falling auto sales in the face of the global slowdown, said on Friday it had applied for court receivership to avoid bankruptcy.

Just two weeks after the automaker was turned down for new bank loans, the company said its Chinese parent Shanghai Automotive Industry Corp had decided the move at an emergency meeting of its board on Thursday night.

'The board of directors decided to apply for a court receivership in order to cope with the current liquidity crisis and turn the company into an entity capable of a continuous growth,' Ssangyong said in a statement.

'At the same time, we will work out measures to normalise the company and execute them strongly,' it said.

Ssangyong has fallen into a financial crisis amid slow auto sales and a dearth of operating funds from its parent firm. It could not meet its payroll on time last month.

The state-run Korea Development Bank (KDB), Ssangyong's main creditor, said late last month that it would not consider new loans unless Shanghai Automotive extended Ssangyong 320 billion won (S$369 million) of funding first.

In its statement, Ssangyong said it was facing a 'serious liquidity crisis' because of the worldwide credit crunch and that losses were mounting in the current climate.

'The operating loss has been widening because of sharp falls in domestic sales and exports as well amid the global economic downturn,' the statement said.

Ssangyong expects to post a net loss of more than 100 billion won for last year.

A spokesman said the courts will now decide 'whether the company should be kept afloat or be liquidated.'

The Korea Automobile Manufacturers Association has forecast that domestic sales by local automakers will drop 8.7 per cent next year to 1.05 million units, the lowest since the financial crisis in 1998.

Shanghai Automotive acquired the automaker, South Korea's smallest, in 2004. -- AFP