[1] In the event a corporation, other than an unlimited partnership and a limited partnership, is in excess of its obligations, whether it is necessary to determine the insolvency status under Article 116(1) of the former Bankruptcy Act in order to declare bankruptcy (negative), and the standard for determining the excess of its obligations

[2] Whether the circumstance where the possibility of rehabilitation exists to a corporation in excess of debt constitutes an obstacle to the declaration of bankruptcy (negative)

[1] Article 117 of the former Bankruptcy Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005) provides that the excess of liabilities to a corporation other than an unlimited partnership company and a limited partnership company shall be an independent cause of bankruptcy separate from each other. Thus, in order to declare a bankruptcy for a corporation in excess of obligations, it does not require that such corporation has entered into a default status, which is a cause of general bankruptcy under Article 116(1) of the former Bankruptcy Act, in addition to the default of obligations. In addition, the determination of the excess of liabilities of a corporation should be based on the total amount of liabilities actually borne by the corporation and the total amount of assets appraised by the actual value of the corporation, not on the basis of the balance sheet, and on the basis of the total amount of liabilities and assets recorded in financial statements, such as balance sheet. Thus, the circumstance that an individual corporation’s law governing the accounting standards, etc. of a corporation provides that its equity capital should not be treated as decreased even if it occurred in the business year.

[2] The circumstance where there is a possibility for rehabilitation to a stock company, such as that the continuous business value of a stock company in excess of debt is higher than the liquidation value, is separate from the requirement for commencement of reorganization proceedings under the former Company Reorganization Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428, Mar. 31, 2005). It cannot be said that such circumstance is an obstacle to the declaration of bankruptcy against a stock company which has a cause of bankruptcy.

[1] Articles 116(1) and 117 (see current Article 305(1) and Article 306 of the Debtor Rehabilitation and Bankruptcy Act) of the former Bankruptcy Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428, Mar. 31, 2005) / [2] Article 117 of the former Debtor Rehabilitation and Bankruptcy Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428, Mar. 31, 2005) (see current Article 306 of the Debtor Rehabilitation and Bankruptcy Act)

Appellant 1 et al. (Law Firm Squa, Attorneys Kim Young-soo et al., Counsel for the plaintiff-appellant)

Financial Supervisory Commission

Busan High Court Order 2006Ra163 dated July 2, 2007

All reappeals are dismissed.

The grounds of reappeal are examined.

1. As to the first and second grounds for reappeal

Article 117(1) and (2) of the former Bankruptcy Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005, hereinafter “former Bankruptcy Act”) provides that a corporation, other than an existing unlimited partnership company and limited partnership company, may be declared bankrupt even in cases where the total amount of debts exceeds the total amount of its assets. This provision provides that a corporation, other than an unlimited partnership company and limited partnership company, shall be deemed an independent bankruptcy cause separate from the total amount of its assets. Thus, in order to declare bankruptcy of a corporation in excess of its debts, it does not require that the corporation has entered into a insolvency state, a general bankruptcy cause under Article 116(1) of the former Bankruptcy Act, other than the excess of its debts, in addition to the total amount of debts actually borne by the corporation and the total amount of assets appraised in real value, not based on financial statements such as balance sheet. Thus, even if an individual corporation’s losses on the accounting standards of the corporation are reduced in its equity capital or value.

In light of the above legal principles and the records, it is reasonable that the court below affirmed the first instance court's decision and maintained the first instance court's decision that declared bankruptcy against the debtor, which declared that the total amount of the debtor's debt exceeds the total amount of assets. The court below's decision did not err in the misapprehension of legal principles as to the cause of corporate bankruptcy and the asset concept under Article 117 (1) of the former Bankruptcy Act, as otherwise asserted in the grounds for

2. As to the third ground for reappeal

The circumstance that there is a possibility of rehabilitation for a stock company, such as that the continuous business value of a stock company in excess of debt is higher than the liquidation value, is separate from the requirement for commencement of reorganization proceedings of the company under the former Company Reorganization Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428, Mar. 31, 2005). However, it cannot be said that such circumstance is an obstacle to the declaration of bankruptcy against a stock company which has a cause

Therefore, even though the court below did not examine whether a debtor is likely to recover through a method other than bankruptcy, there is no error in the incomplete hearing as otherwise alleged in the grounds for reappeal.

3. As to the fourth ground for reappeal

In light of the records, the court below is justified in holding that the petition for bankruptcy of this case cannot be deemed an abuse of bankruptcy procedure in full view of various circumstances, including the degree of excess of the debtor's obligation, contents and feasibility of the management improvement plan submitted by the debtor, etc., and the cost when the contract transfer procedure for the debtor is carried out against the debtor is overcoming the expenses when the debtor is liquidated or bankrupt. The court below did not err in the misapprehension of legal principles as to abuse of bankruptcy procedure or incomplete hearing as

4. Conclusion

Therefore, all reappeals are dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Shin Hyun-chul (Presiding Justice)