E. S. S. L.S. Corporation (Attorney Thai-soo, Counsel for the defendant-appellant)

Korean Bank (Law Firm Chungcheong, Attorney Kim Jong-young, Counsel for the defendant-appellant)

June 13, 2014

Seoul Central District Court Decision 2012Da313151 Decided October 1, 2013

1.The judgment of the first instance shall be modified as follows:

A. On January 31, 2012, the Plaintiff’s obligation under a discount agreement (B2B, No. Serial omitted) against the Defendant does not exist in excess of the principal amount of KRW 83,537,732 and the interest obligation thereon.

B. The plaintiff's remaining claims are dismissed.

2. The total costs of the lawsuit shall be four-minutes, and such three-minutes shall be borne by the plaintiff, and the remainder by the defendant respectively.

Of the part against the plaintiff in the judgment of the court of first instance, the part against the plaintiff corresponding to the order to confirm is revoked. On January 31, 2012, the plaintiff's obligation based on a discount agreement (B2B, No. Serial omitted) against the defendant does not exceed the principal amount of KRW 24,750,00 and interest obligation thereon (the plaintiff reduced his claim in the trial). Meanwhile, in the rehabilitation procedure for building walls in the first instance, the plaintiff offered the defendant's claim for partial repayment of the obligation based on conversion of investment, and in the trial, the court reduced the plaintiff's claim based on this decision.

1. Basic facts

The reasoning for this Court’s explanation is as follows: (a) the main contents of the loan agreement of this case are added under Section 2, Section 19 of the judgment of the court of first instance; and (b) the main contents of Article 420 of the Civil Procedure Act are as stated in Section 1 of the judgment of the court of first instance, except for the addition of “the passage” to “the fourth 30 May 20, 2012” following the fourth 2 of the judgment of the court of first instance.

[Supplementary Parts]

The main contents of the loan agreement of this case are as follows.

【B2B Loan Agreements】

Article 7 (Date of Repayment of Loans and Method of Repayment)

(1) The repayment date of individual loans shall be the due date of "sales bonds" corresponding to the individual loans.

(2) The repayment of individual loans under the preceding paragraph shall be made by the bank upon receipt of direct repayment from the customer who is the debtor of the bonds at the due date of the "sales bonds" corresponding to the individual loans.

(3) If the Customer fails to pay in whole or in part the “sales claim” on the date of payment, the Customer shall immediately pay in full.

Article 10 (Indication of Transfer Claim and Security Obligation)

Bonds and secured liabilities subject to transfer shall be as follows:

1. Indication of the transferred bonds;

The principal shall supply goods and services to the customer in accordance with the basic transaction contract that he/she holds with the debtor of the current transferred credit ("Transaction") or that he/she establishes with the customer, and shall have all claims against the customer to be received through the electronic transaction credit settlement service of the bank during the lending period prescribed in Article 3.

2. Scope of secured debts (limited collateral security);

The transferor of credit may secure all obligations (including interest, damages for delay, and other incidental obligations) currently and future due to the transaction of credit sales claims against the bank in accordance with this Agreement by the transferor of credit.

2. Determination

The reasoning for this Court’s explanation is as follows, i.e., the “23012.” No. 6, No. 13 of the judgment of the court of first instance, i.e., “2012.” and i., “the Plaintiff” of No. 10, No. 16, i.e., “the Defendant” and “the Defendant”, i.e., “the part concerning the Plaintiff’s assertion” of Article 420 of the Civil Procedure Act, and thus, ii).

[Completioned Parts]

(d) Claims on the rehabilitation plan for the construction of walls;

1) The assertion

The plaintiff asserts that, in the rehabilitation procedure in progress with respect to the construction of brickd construction, the defendant did not have any obligation exceeding 24,750,000 won of the principal amount equivalent to 25% of the above claim and interest liability, since the debt-equity swap in the way that the defendant received new shares according to the rehabilitation plan would substitute for the repayment of 75% of the claim of this case.

As to this, the defendant asserts that a debt-to-equity swap is merely a conversion of collateral from the claim of this case to the sloping Construction Stock, and that the obligation to be borne by the plaintiff is not extinguished to the extent of its assertion

2) Determination

In addition to the purport of the entire pleadings as to Gap evidence Nos. 21 through 29, the fact that the defendant reported the claim of this case in the rehabilitation procedure (Seoul Central District Court 2012 Ma116) in progress for the brick construction, the main contents of the rehabilitation plan for the brick construction are to convert the principal of the general commercial transaction obligation including the claim of this case into equity and the interest prior to the commencement of rehabilitation into equity and to pay the remainder of 25% in cash in 10 years, the issue price and face value shall be 5,00 won per share, the issue price and face value shall be 5,00 won per share, and the issuance date of new shares shall be 12.1.1.20, the above rehabilitation plan was approved on November 1, 2012; the construction of the brick construction in accordance with the above finalized rehabilitation plan shall be 68,974,000 shares of this case; the defendant acquired the new shares of this case into a conversion into equity among 14th shares in Seoul, 20686.4.2

In accordance with the provisions of Articles 10 and 11 of the Loan Agreement, the loan of this case is made by the method that the plaintiff obtains a loan from the defendant and transfers the claim of this case to the plaintiff for construction of brickd Construction in order to secure this, and it shall be deemed that the plaintiff offered the claim of this case to the defendant as security for transfer.

However, in the case of transfer for security, when the debtor fails to perform the secured obligation after the maturity date, the creditor can obtain satisfaction of the secured obligation by realizing the right of transfer for security, and when the rehabilitation creditor is issued stocks through conversion of investment in the rehabilitation procedure, it can be easily realized in the market, such as the Stock Exchange. As such, the rehabilitation creditor can be deemed to have repaid the value of new stocks assessed as of the time when the conversion of investment takes effect.

On the other hand, it is reasonable to deem that the Defendant has obtained the satisfaction of the secured obligation (a loan to the Plaintiff’s Defendant) by exercising the right of collateral transfer based on the loan agreement of this case after the execution of the secured obligation by exercising the right of collateral transfer (the effect of the previous exemption or change of right remains as it is even if the rehabilitation procedure has been abolished after the authorization of the rehabilitation plan).

Furthermore, the scope of extinguishment of secured debt should be considered as having been actually satisfied with respect to the amount equivalent to the market price of new shares acquired by rehabilitation creditors at the time of the effective date of issuance of new shares in the rehabilitation procedure in substitution for payment of all or part of the claim through a conversion of investment in the method of issuing new shares in the rehabilitation procedure (see, e.g., Supreme Court Decisions 2002Da12703, 12710, Jan. 10, 2003; 2005Da17518, Jul. 28, 2005; 2010Da28383, Jun. 14, 2012; 2008Da97218, Sept. 16, 2010; however, the Plaintiff’s assertion that the above legal principle should be applied to a conversion of investment in the form of new shares in substitution for payment of the claim (i.e., the issue price in this case is 74,250,0000 won).

In light of the above legal principles, according to the evidence as seen earlier, the market price of the brick construction stocks as of November 12, 2012, which was the effective date of issuance of new stocks, is KRW 1,285 per share, and the appraised value of the instant converted investment shares is KRW 19,082,250 per share (=14,850 per share x 1,285 won).

In accordance with the provisions of Article 477 of the Civil Act, if expenses, interest, and principal are appropriated in the order of priority (in the above rehabilitation plan, there is no evidence to deem that the agreement was reached between the plaintiff and the defendant as above), 3,619,982 won [the principal amount of KRW 99,00,000 from January 31, 2012 to May 30, 2012, the amount of interest paid (the amount of KRW 2,616,854 which was deducted at the time of deposit) is equal to the creditors' interest paid in advance for 120 days from the maturity date of the rehabilitation plan, and there is no evidence to support that the defendant's remaining amount should be appropriated for 8.04% per annum from May 31, 2012 to November 12, 2012, which is the effective date of the issuance of new shares], and there is no evidence to support the defendant's remaining amount of money remaining after the rehabilitation plan by 300,0900,564666%.

3. Conclusion

Therefore, the Plaintiff’s obligation based on the loan agreement of this case against the Defendant does not exceed the principal amount of KRW 83,537,732 and interest obligation thereon. The Plaintiff’s claim of this case is accepted within the scope of the above recognition, and the remainder of the claim is dismissed as it is without merit. The judgment of the court of first instance is unfair in conclusion, and the judgment of the court of first instance is partially accepted, and it is so decided as per Disposition by the assent of the court of first instance.

Judges Kim Il-il (Presiding Judge)