National Bank of Korea (Law Firm Jeong, Attorneys Lee Jong-ok et al., Counsel for the defendant-appellant)

Defendant 1 and one other (Law Firm Jungwon, Attorneys Lee Ba-deok et al., Counsel for the defendant-appellant)

December 4, 2012

Seoul Central District Court Decision 201Gahap82877 Decided November 2, 2011

1. Revocation of the first instance judgment.

2. The plaintiff's claims against the defendants are all dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The Defendants jointly and severally pay to the Plaintiff 1,567,606,627 won and 1,503,932,286 won among them with 21% interest per annum from July 8, 2011 to the date of full payment.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Facts of recognition;

A. The relationship between the Republic of Korea and the Defendants

Defendant 1 was the representative director of the Hahnam Construction Co., Ltd. (hereinafter referred to as the “Tannam Construction”), the principal, and one de facto shareholder who held all the shares of the Tannam Construction in the name of Nonparty 1 and Nonparty 2, and the Tan Nam Construction is the major shareholder who holds 97.69% of the shares of the Yan Nam-B Co., Ltd. (hereinafter referred to as the “Defendant Co., Ltd.”).

(b) Rehabilitation procedures for construction in South and North Korea;

1) On July 11, 2008, the Daegu District Court 2008 Gohap9 filed an application for commencing rehabilitation procedures with respect to the Plaintiff, etc., and the said court (hereinafter “Rehabilitation Court”) rendered a decision on July 11, 2008, and appointed Defendant 1 as the administrator of the Daegu Construction.

2) As above, on December 22, 2008 after the commencement of rehabilitation procedures, the assembly of related persons related to the construction in the Nam and resolution on the rehabilitation plan was passed. The above rehabilitation plan was a content that 30% of the principal amount shall be extended by the fifth year (2013), and the sixth year (2014) through the tenth year (2018), and the remaining 70% shall be replaced by the conversion of the amount of credit into equity with the shares of the construction in the Republic of Korea. The rehabilitation court decided to authorize the above rehabilitation plan on the same day.

C. Conclusion of a contract for sales of stocks

1) Around December 2008, the Plaintiff entered into a contract with Defendant 1 on the terms that the Plaintiff would sell the common shares (e.g., par value 10,000 won) (hereinafter “instant shares”) of the Yongnam Construction, which the Plaintiff would take over in the form of conversion into investment according to the said rehabilitation plan, as “a larger amount (e.g., net asset value per share or face value 110% (1,000 won) of the net asset value per share or face value)” (hereinafter “instant share sales contract”). The Defendant Company jointly and severally guaranteed Defendant 1’s obligation pursuant to the instant share sales contract to the Plaintiff. The main contents of the instant share sales contract are as follows.

Article 1 (Matters concerning Payment of Price) of the Table contained in the main text of this Agreement, Defendant 1’s joint guarantor (liability of joint guarantor) shall decide to issue the said shares and underwrite the shares owned by the Plaintiff, and the sales price shall be paid in cash as of December 31, 201 by evaluating the net asset value of the Plaintiff as of December 31, 2010. Defendant 1 may immediately pay the sales price to the Plaintiff, transfer the name, and transfer the ownership of the shares, even before the date of payment of the sales price. At the same time, Defendant 1’s joint guarantor of this Agreement shall cooperate with the transfer of the ownership to Defendant 1 at the same time upon receipt of the total amount of the sales price of the shares, and at the same time, Defendant 1’s transfer of the shares to the Plaintiff. In the event that Defendant 1 fails to perform his obligation by the date of acquisition of shares, Defendant 1’s joint guarantor shall take over shares to the Plaintiff as of December 31, 2010 】 The payment of unpaid interest in accordance with the following formula under Article 8(1).

2) Meanwhile, the Plaintiff’s overdue interest rate on the Plaintiff’s special bond is 21% per annum, and the Plaintiff disbursed a total of KRW 3,970,290 to the Defendants’ expenses, such as provisional seizure, to preserve the claim for the purchase price under the instant share sales contract.

(d) Early completion, etc. of rehabilitation procedures for construction in Nam;

1) Since the approval of the rehabilitation plan, as the sales increase rapidly due to the orders of government-contract construction, etc. after the approval of the rehabilitation plan, the repayment of the obligations to be repaid in the rehabilitation plan was made earlier than the original plan. Accordingly, on December 31, 2009, the rehabilitation court decided to terminate the rehabilitation procedure for the Nam Construction.

2) As of December 31, 2010, as of December 31, 2010, 18,225,207,013 won for total assets of the Luxembourg Construction, 7,730,771,383 won for total debts, and 352,982 shares for total assets.

3) As of May 24, 201, the Plaintiff holds 14.331% of the total outstanding shares of YT 352,982.

[Ground of recognition] Facts without dispute, Gap 1 through 9 evidence, Eul 1 through 4, 5, 6, 10, and 16 evidence, non-party 3's testimony and the purport of the whole pleadings

2. Determination as to the cause of action

According to the above facts, barring special circumstances, the Defendants are obligated to pay to the Plaintiff the purchase price of KRW 1,503,932,286 under the Stock Sales Contract (i.e., KRW 29,730.7942 per share as of December 31, 2010) x KRW 50,585 per share x delay damages of KRW 59,704,051 until July 7, 2011 (i.e., KRW 1,503,932,286 x KRW 0.21 x below KRW 69/365, KRW 3,970, KRW 1,567,627, KRW 1,503,932, KRW 286 per share as of December 31, 201, KRW 29, KRW 309,579, KRW 2975, KRW 2975, KRW 2981,2975,27575).

3. Judgment on the defendants' assertion

A. Summary of the defendants' assertion

1) The Plaintiff, with respect to Samsung Construction, intends to give consent to the rehabilitation plan on condition that the Plaintiff would purchase the shares of this case to be acquired through debt-equity swap. As such, Defendant 1 entered into the share purchase contract for the purpose of obtaining the Plaintiff’s consent, and Defendant Company, the subsidiary company of the Daegu Construction, as the Plaintiff’s demand, jointly and severally guaranteed Defendant 1’s obligation under the above purchase contract. The instant share purchase contract is null and void in violation of Article 219 of the Debtor Rehabilitation and Bankruptcy Act, since the rehabilitation company’s construction in South and North Korea gives special benefits to the Plaintiff, who is a rehabilitation creditor, rather than according to the rehabilitation plan under the name of the Defendants, a third party.

2) The Plaintiff entered into the instant share purchase agreement for the consideration to consent to the rehabilitation plan, and such agreement is null and void as it violates Article 645 of the Debtor Rehabilitation Act.

3) Also, the instant sales contract constitutes a juristic act or unfair juristic act contrary to social order and thus null and void.

4) Even if the instant sales contract is valid, it was concluded on December 31, 2010 on the premise that the instant sales contract is in the process of rehabilitation for the Nam Construction until December 31, 2010, which is the time of assessing the value of the shares for the Nam Construction. As such, the Defendants’ cancellation of the instant sales contract on the ground of change in circumstances.

5) In the conclusion of the instant sales contract, there was no resolution of the board of directors of the Defendant Company, and the Plaintiff knew or could have known such circumstances, and thus, the instant sales contract has no effect on the Defendant Company.

B. Whether the share sales contract of this case is null and void under Article 219 of the Debtor Rehabilitation Act

1) The meaning of “special benefit” under Article 219 of the Debtor Rehabilitation Act

Article 219 of the Debtor Rehabilitation Act provides, “The act that an obligor gives special benefits to some rehabilitation creditors, rehabilitation secured creditors, shareholders, and equity right holders without resorting to the rehabilitation plan in the name of himself/herself or a third party shall be null and void.” This is intended to prevent any damage to the fair establishment of the rehabilitation plan by preventing a debtor from granting special benefits to some creditors for the purpose of obtaining consent from a large number of rehabilitation creditors under the circumstances in which it is difficult to obtain consent from the creditors.

In light of the above, the act of invalidation of the above provision means ① an act committed by the debtor under the name of himself or a third party, ② an act that interferes with the fair establishment of the rehabilitation plan by offering special benefits to the other party, or unfairly provides special benefits different from the rehabilitation plan in order to influence its establishment (see Supreme Court Decision 2006Da85666, Oct. 26, 2007). Furthermore, in addition, the agreement on the provision or provision of special benefits was made before the approval of the rehabilitation plan becomes final and conclusive (see Supreme Court Decision 2006Da8566, Oct. 26, 2007). (4) other than the fact that the debtor or the other party has an intention to interfere with the fair establishment of the rehabilitation plan by offering special benefits, or unfairly affect the fair establishment of the rehabilitation plan. Such determination should be made by comprehensively taking into account the circumstances such as the process or purpose of offering the benefits, details of offering the benefits, and influence on the establishment and implementation of the rehabilitation plan on other rehabilitation creditors (see the above Decision 2006Da5666666).

(ii) the facts of recognition

The following facts are acknowledged in light of the overall purport of each evidence presented above.

A) Of the Plaintiff’s claims of KRW 2,890,612,742 (the claim reported at the beginning of the first half of the year) out of the total rehabilitation claim 14,922,850,406 at the time of the rehabilitation procedure for the construction of the Namnam, the Plaintiff was the maximum creditor of the total rehabilitation claim as 19.37% (the rehabilitation claim amount of the Korea Credit Guarantee Fund was 2.37 billion) of the total rehabilitation claim (the total rehabilitation claim amount was 2.3 billion).

B) In order to receive government-funded construction works in 2009 as ordered, it obtained the authorization of the rehabilitation plan within the end of 2008. However, on November 24, 2008, the creditors meeting continued on December 22, 2008 due to the creditor’s consent ratio. As the creditors meeting continued on December 24, 2008, it was urged that the Defendant 1, who was the actual owner and manager of the construction, the non-party 3, and the non-party 4, who was an executive officer and employee, contacted the plaintiff on several occasions and agreed to the rehabilitation plan.

C) During the aforementioned consultation process, the construction and the Plaintiff’s side promoted a share purchase contract with the effect that Defendant 1 would purchase shares to be acquired in accordance with the rehabilitation plan, on condition that the Plaintiff consented to the rehabilitation plan, and upon the Plaintiff’s request, the Defendant Company, the subsidiaries of the construction of the construction of the Republic of Korea, was jointly and severally guaranteed, and the share purchase contract of the instant case was concluded.

D) Accordingly, the Plaintiff attended the meeting of creditors held on December 22, 2008 and passed the rehabilitation plan by consenting to the rehabilitation plan. At the time, other rehabilitation creditors or rehabilitation secured creditors who agreed to the rehabilitation plan were unaware of the existence of the share sales contract of this case.

E) At the time of the conclusion of the instant contract for the purchase of shares, Defendant 1 did not have any particular positive property. The west Construction calculated and reported the shares issued by the Defendant Company as KRW 1.27 billion upon filing an application for rehabilitation (Evidence B 10).

3) Determination

In addition, Defendant 1 promoted the share purchase contract of this case with the officers and employees of the Ha Nam Construction as the actual private owner and manager of the Ha Nam Construction. It is reasonable to view that the share purchase contract of this case in the name of the Ha Nam Construction itself or the defendant company is the act of the Ha Nam Construction, which is the debtor. In addition, Defendant 1 had the defendant company holding shares of 97.69% under the condition that the Ha Nam Construction does not have a responsible property. The bearing of excessive liabilities unrelated to the management of the defendant company eventually result in the reduction of the responsibilities of the Ha Nam Construction, which holds shares issued by the defendant company, and its economic effect also belongs to the Ha Nam Construction.

In addition, the share sales contract of this case, on the premise of the Plaintiff’s consent, allows the Plaintiff to sell shares into equity at a certain price at a specific time, and thus, constitutes an act of providing special benefits, different from the rehabilitation plan, in order to affect the fair establishment of the rehabilitation plan.

Furthermore, in full view of various circumstances such as the circumstance and purpose of concluding the instant share purchase agreement, the instant share purchase agreement was a content that shares converted into equity at a certain price during the period in which the rehabilitation plan is implemented under a clear condition as to whether the instant shares were reinstated (in particular, before a grace period of 30% of the principal to be repaid in cash has elapsed). The west Construction was exempted from the burden of debt repayment due to the resolution of the rehabilitation plan; the Plaintiff consented to the rehabilitation plan upon the conclusion of the instant share purchase agreement; and other rehabilitation creditors, who are not aware of the existence of the instant side agreement, did not oppose the conclusion or rejection of the Plaintiff; thus, the rehabilitation plan was resolved and authorized; and if other rehabilitation creditors were aware of the existence of the said side agreement, it would not have agreed to the rehabilitation plan. Accordingly, it should be deemed that there was an intention to interfere with the fair establishment of the rehabilitation plan or unfairly affect the establishment of the rehabilitation plan through the provision of special benefits between the Plaintiff and the Nam Construction at the time of concluding the instant share purchase agreement and the Defendants.

Therefore, the share sales contract of this case shall be null and void as an act that an obligor under Article 219 of the Debtor Rehabilitation Act gives a special benefit in the name of a third party.

According to the above circumstances, the share sales contract of this case is not permissible as a contract for the purchase of shares by conversion of shares from a specific rehabilitation creditor during the period in which rehabilitation proceedings are expected to continue against the principle of equality of rehabilitation creditors, and it is not permitted as a contract for the purchase of shares by conversion of shares from a specific rehabilitation creditor during the period in which rehabilitation proceedings are expected to continue against the principle of equality of rehabilitation creditors. In light of the above, it is against good morals and other social order and it is not possible to deny its validity as it constitutes a violation of Article 103 of the Civil Act and thus against good morals and social order.

Therefore, we cannot further examine the remainder of the Defendants’ assertion.

C. Sub-committee

Therefore, the plaintiff's claim seeking the payment of the purchase price and the expenses related to the above contract under the invalid contract is without merit.

4. Conclusion

Therefore, the plaintiff's claim is dismissed, and the judgment of the court of first instance is unfair with different conclusions, and it is so decided as per Disposition.

Judges Lee Do-won (Presiding Judge)

Note 1) 20 per cent shall be repaid in equal installments from 2014 to 2018, and 10 per cent shall be repaid in 2018.

Note 2) (Total Assets 18,225,207,013 - Total Debt 7,730,771,383 Won) / Total outstanding shares 352,982 shares, as sought by the Plaintiff, and a small number of less than five decimals, as sought by the Plaintiff.

3) As to Article 53 of the former Composition Act and Article 277 of the former Bankruptcy Act, the above precedents regarding the “Invalidation of the act of offering special benefits” shall also apply to the rehabilitation procedure by enacting the same provision under Article 219 of the Debtor Rehabilitation Act, which combines composition and company reorganization procedures into the rehabilitation procedure. The precedents regarding the invalidation of the act of offering special benefits after the enforcement of the Debtor Rehabilitation Act are not yet visible.

Note 4) The Debtor Rehabilitation Act requires not only the composition debtor but also a third party to be a provider of special benefits, compared to the composition law that could have been the provider of such special benefits, the perpetrator of the provision of special benefits must be the debtor.