Case on the Dissolution of Kukje Group

[5-2 KCCR 87, 89Hun-Ma31, July 29, 1993]

A. Background of the Case

In this case, the Constitutional Court held that the exercise of governmental power aimed at the dissolution of Kukje Group constituted de facto exercise of power and was therefore unconstitutional.

The complainant was the founder of Kukje Group, who owned stocks of its affiliates companies. In 1985, under the 5th Republic regime, the primary lender of Kukje Group, Korea First Bank, announced the dissolution plan for the company. Following a series of subsequent actions, Kukje Group was dissolved.

The complainant filed a constitutional complaint, claiming that his fundamental rights had been infringed by a serial exercise of governmental power during the Fifth Republic, in which the Minister of Finance reported a dissolution plan to the President, under whose order steps were taken to execute the dissolution of Kukje Group.

B. Summary of the Decision

The Constitutional Court held that the exercise of governmental power aimed at the dissolution of Kukje Group, asde factoexercise of power, violated the freedom of entrepreneurship and right to equality, for the following reasons.

The state's active, patriarchal intervention in the management of a private business paralyzes the problem-solving capability of the business, and weakens its ability to respond to the principles of market economy. Such intervention does not show respect for economic freedom and creativity of enterprises guaranteed under Article 119 Section 1 of the Constitution. The exercise of governmental power to turn the control of a private enterprise over to a third party without any statutory basis violates the freedom of individual enterprise and the rule against intervening in management in Article 126 of the Constitution.

Restrictions on individual's rights and imposition of duty by governmental power must be based on statutes, and the same applies to intervention in and restriction of corporate management. The exercise of governmental power without any statutory basis violates the procedural requirements of the rule of law. Further, such arbitrary exercise of power without any statutory authorization

violates the rule against arbitrariness, derived from the rule of equality under Article 11 of the Constitution.

Therefore, the Minister of Finance’s series of acts including reporting to the President and following the President's directives to make a dissolution plan for Kukje Group by instructing the Chief of Korea First Bank to take control over the bank deposits of Kukje Group’s affiliate companies and facilitate the delegation of the right to dispose the company without any statutory basis shall be considered as the infringement on the complainant’s constitutional rights. In addition, the Minister also instructed the bank to issue the "Kukje Group Normalization Plan," which he had drafted himself, in the form of the bank’s press release. These actions violated the principle of the rule of law and Articles 119 Section 1, Article 126 and Article 11 of the Constitution, infringing upon the complainant’s right to equality and freedom of entrepreneurship.

Justice Choe Kwang-Ryool dissented, opining that the complaint should be dismissed because it passed the time limit for filing the complaint.

C. Significance of the Decision and Aftermath of the Case

The decision clearly declared the meaning of the rule of law and established the definition of a market economy; it therefore holds great significance in terms of the development of the rule of law in Korea. Regarding this decision, a press report stated that the exercise of presidential authority is subject to the requirements of due process set up within the boundaries of the Constitution, and that the efforts and responsibility of both business and government are required for them to establish a relationship aligned with the principles of a market economy (Choongang Daily, July 30, 1993).

As a result of this decision, the complainant, the founder of Kukje Group, gained the opportunity to recover the dissolved companies. However, on May 4, 1994, the Seoul High Court dismissed the complainant's appeal of the suit in which he demanded that the stocks of Hanil Synthetic Fiber Co., Ltd. be returned. The court reasoned that the stock sales contract was neither void nor voidable. The rationale behind this is that although the government's groundless infringement upon entrepreneurial freedom may be wrong in itself, it does not turn contracts between private parties into violations of the social order or unfair legal actions.

Meanwhile, the complainant also filed criminal complaints against former President Chun Doo-Hwan and the representatives of the companies that

acquired Kukje Group, charging breach of professional trust, extortion, robbery, etc. at the Seoul District Public Prosecutor's Office. The accused received non-prosecution dispositions on lack of suspicion on September 13, 1994.

The complainant, however, did prevail in the suit to recover the stocks of Shinhan Investment Finance. The Court ordered Korea First Bank to return 1.3 million stocks of Shinhan Investment Finance Co. to the previous owner, Kim Jong-ho, on the grounds that the original transfer of stocks to Korea First Bank during the dissolution of Kukje Group took place under duress.