In a case where an obligor jointly and severally liable with a bankrupt debtor fully performs his/her obligation within the scope of liability after the bankruptcy is declared against the bankrupt debtor, but the obligee fails to satisfy the total amount of the obligation, whether the obligee may exercise his/her right as a bankruptcy creditor with respect to the total amount of the obligation held when the bankruptcy is declared (affirmative), and whether Article 431 of the Debtor Rehabilitation and Bankruptcy Act with respect to partial guarantee may apply mutatis mutandis (negative)

Article 428 of the Debtor Rehabilitation and Bankruptcy Act (hereinafter “ Debtor Rehabilitation Act”) provides, “Where multiple debtors are liable to perform all obligations, and all or some of such debtors are declared bankrupt, creditors may exercise their rights as bankruptcy creditors on the total amount of claims held at the time bankruptcy is declared against each bankrupt estate.” Thus, even if a bankruptcy creditor receives a partial repayment from another debtor after the declaration of bankruptcy or a part of the dividends, etc. are paid by participating in the bankruptcy procedures, etc. against another debtor, it does not result in the decrease in the total amount of claims. As such, creditors are still entitled to participate in bankruptcy proceedings with the total amount of claims at the time the bankruptcy is declared, and creditors are not entitled to exercise their rights as bankruptcy creditors in proportion to the amount they have repaid. Meanwhile, the purpose of the quasi-joint and several liability system is to guarantee the full amount of claims owed to creditors regardless of their self-reliance, repayment order, and indemnity relationship among them.

Therefore, even if a debtor jointly and severally liable with a bankrupt debtor fully performs his/her obligation within the scope of liability after the bankruptcy is declared, where the creditor fails to satisfy the total amount of the claim, the creditor may still exercise his/her right as a bankruptcy creditor with respect to the total amount of the claim that he/she holds when the bankruptcy is declared (Article 428 of the Debtor Rehabilitation Act). As to this, in cases of a partial guarantor who fully performs the guaranteed obligation after the bankruptcy is declared against the bankrupt debtor, even if the creditor fails to meet the total amount of the claim, Article 431 of the Debtor Rehabilitation Act, which stipulates that the creditor may exercise his/her right as a bankruptcy creditor according

Articles 428, 430(1) and (2), and 431 of the Debtor Rehabilitation and Bankruptcy Act

Supreme Court Decision 2007Da37752 Decided August 21, 2008 (Gong2008Ha, 1274) Supreme Court Decision 2016Da252898 Decided April 10, 2018 (Gong2018Sang, 859)

Korea Deposit Insurance Corporation (LLC, Kim & Lee LLC, Attorneys Hong-sung et al., Counsel for the plaintiff-appellant)

Samsungbow Scholarship Foundation and one other (Law Firm LLC, Attorneys O Jong-soo et al., Counsel for the defendant-appellant)

Busan High Court Decision 2018Na57981 decided September 19, 2019

All appeals are dismissed. The costs of appeal are assessed against the Plaintiff.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

For reasons indicated in its holding, the lower court determined that the final claim inspection judgment of this case was justifiable on the premise that Article 464 of the Debtor Rehabilitation and Bankruptcy Act applies only to the part claimed by the Defendants in a civil case between the Defendants and Busan Savings Bank, which was pending at the time the debtor, Busan Savings Bank (hereinafter “BB Savings Bank”) was declared bankrupt, on the premise that Article 464 of the Debtor Rehabilitation and Bankruptcy Act (hereinafter “ Debtor Rehabilitation Act”) applies to the part of the damage claim against the Busan Savings Bank, except the above part of the damage claim, which was part of

In light of the relevant legal principles and records, such determination by the court below is justifiable. Contrary to the allegations in the grounds of appeal, the court below did not err by misapprehending the legal principles on interpretation and application of Articles 462 and 464 of the Debtor Rehabilitation Act, thereby affecting the conclusion

2. Regarding ground of appeal No. 2

As indicated in its holding, the lower court rejected the Plaintiff’s assertion that, inasmuch as Article 430(2) of the Debtor Rehabilitation Act provides that a creditor shall obtain the rights of the creditor in the event the creditor fully performs his/her obligation upon satisfaction of the total amount of his/her claim, according to the repayment ratio, etc., and so long as the creditor is not satisfied with the total amount of his/her claim at the time of declaration of bankruptcy, the obligee cannot exercise his/her rights as a bankruptcy creditor together with the obligee, insofar as the obligor partially performs his/her claim is not satisfied, the obligee cannot exercise his/her rights as a bankruptcy creditor in proportion to his/her repayment ratio, the amount of his/her obligation jointly and severally and severally liable with the Busan Savings Bank (hereinafter “Case Asset Management”) has repaid the amount of damages to the Defendants within the scope of his/her responsibility, regardless of whether the amount of the repayment is fully satisfied with the Defendants’ total amount

In light of the relevant legal principles and records, the lower court’s determination is justifiable, and contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the interpretation and application of Article 430(2) of the Debtor Rehabilitation

3. As to the third ground for appeal

A. Article 428 of the Debtor Rehabilitation Act provides, “In cases where multiple debtors are liable to perform all obligations, and all or some of such debtors are declared bankrupt, creditors may exercise their rights as bankruptcy creditors against each bankrupt estate with respect to the total amount of claims held at the time bankruptcy is declared.” Thus, even if a bankruptcy creditor receives a partial repayment from another debtor after the bankruptcy is declared, or a distribution is made by participating in bankruptcy procedures against another debtor, etc., the creditor does not thereby reduce the total amount of claims. Thus, the creditor is still entitled to participate in bankruptcy proceedings with the full amount of claims at the time the bankruptcy is declared, and the right to indemnity on part of the claims is not entitled to exercise his/her rights as bankruptcy creditor together with the creditor in proportion to the amount he/she has repaid (see Supreme Court Decision 2007Da37752, Aug. 21, 2008). Meanwhile, the purpose of the vicarious joint and several liability system is to guarantee the full amount of obligations owed to the creditor regardless of the ability, order of repayment, and indemnity relationship among the vicarious debtors (see Supreme Court Decision 2018Da.

Therefore, even if a debtor jointly and severally liable with a bankrupt debtor fully performs his/her obligation within the scope of liability after the debtor is declared bankrupt, where the creditor is still unable to satisfy the total amount of his/her obligation, the creditor may still exercise his/her right as a bankruptcy creditor with respect to the total amount of his/her obligation at the time that the bankruptcy is declared (Article 428 of the Debtor Rehabilitation Act). As to the foregoing, in cases of a partial guarantor who fully performs the guaranteed obligation after the bankruptcy is declared bankrupt, even if the creditor fails to meet the total amount of the obligation, Article 431 of the Debtor Rehabilitation Act, which provides that the creditor may exercise his/her right as a bankruptcy creditor in proportion

B. The court below rejected the Plaintiff’s assertion that, under Article 431 of the Debtor Rehabilitation Act as to partial guarantee, a debtor jointly and severally liable with the bankrupt debtor fully performs his/her obligation within the scope of his/her liability; however, if the creditor fails to meet the total amount of the claim, it may not be applied mutatis mutandis to cases where the creditor fully performs his/her obligation, and thus, the case assets management, which is jointly and severally liable for part of the obligation owed by the Busan Savings Bank to the Defendants, fully performs its obligation to the Defendants, the amount of the obligation owed by the Busan Savings Bank to the Defendants, so the Defendants

C. Examining in light of the aforementioned legal principles, the lower court’s determination is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on interpretation and application of Article 431 of the Debtor Rehabilitation Act

4. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim H-soo (Presiding Justice)