[1] Purport of Article 240(2) of the former Company Reorganization Act and meaning of “security provided by a person other than a company for a reorganization creditor or security holder” under the above provision

[2] The point of time when the extinctive prescription of the right to secure another's property which was interrupted due to the participation in company reorganization

[3] In a case where the decision to authorize a reorganization program becomes final and conclusive, whether Article 165 of the Civil Act applies to “the right recognized by the provisions of the reorganization program” and the period of extinctive prescription is extended to 10 years (affirmative), and in a case where the whole or part of a reorganization claim or security is exempted or reduced by the reorganization program, whether the extinctive prescription period of the right to the portion exempted or reduced is extended to 10 years (negative)

[1] Article 240 (2) of the former Company Reorganization Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005) (see Article 250 (2) of the current Debtor Rehabilitation and Bankruptcy Act) / [2] Article 5 of the former Company Reorganization Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005) (see Article 32 subparagraph 1 of the current Debtor Rehabilitation and Bankruptcy Act) / [3] Article 245 (1) of the former Company Reorganization Act (repealed by Article 2 of Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005), Article 165 (1) and (2) of the Civil Act (see Article 255 (1) of the current Debtor Rehabilitation and Bankruptcy Act), Article 165 (1) and (2) of the Civil Act

[1] Supreme Court Decision 2005Da38300 Decided April 26, 2007 (Gong2007Sang, 761) / [2] Supreme Court Decision 2007Da11231 Decided May 31, 2007 (Gong2007Ha, 966)

Re-appellant

Dam Investment Co., Ltd.

Seoul Central District Court Order 2016Ra1086 dated April 12, 2017

The order of the court below is reversed, and the case is remanded to the Seoul Central District Court Panel Division.

The grounds of reappeal are examined.

1. As to the grounds for re-appeal on the scope of effect of reorganization programs

A. Article 240(2) of the former Company Reorganization Act (amended by Act No. 7428 of Mar. 31, 2005, Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act; hereinafter “Company Reorganization Act”) provides that “The reorganization plan shall not affect any rights held by a reorganization security holder against a guarantor or any other person who bears an obligation together with the company, and any security provided by a person other than the company for a reorganization creditor or security holder for a reorganization creditor or security holder.” This purport of the reorganization plan does not discharge or change the obligations of the reorganization company for a person other than the company. The term “security provided by a person other than the company for a reorganization creditor or security holder” refers to a security right that a reorganization creditor, etc. has a secured claim against the reorganization company as a secured claim on the property of a third party. As such, a reorganization creditor may exercise a mortgage within the scope of the maximum debt amount based on the first secured claim under the agreement before the reorganization plan is modified (see, e.g., Supreme Court Decision 2005Da38305, Apr. 26, 2007).

B. On the grounds stated in its reasoning, the lower court determined that the Re-Appellant’s assertion that the Defendant acquired a right based on the right of collateral security (hereinafter “instant collateral security”) in sequence from the reorganization creditor under the judgment of the lower court was not acceptable, on the grounds that the Defendant could exercise a mortgage based on the secured claim of the instant collateral security (hereinafter “instant collateral security”) even though the company reorganization procedure (hereinafter “instant company reorganization procedure”) regarding the Korea Steel Industries Co., Ltd. (hereinafter “Korea Steel”) was completed on May 19, 209.

C. Examining the reasoning of the judgment below in light of the above legal principles, even if the reorganization plan was approved to change the secured obligation of the instant right to collateral in the reorganization procedure for the Han Steel, the judgment of the court below is based on the legal principles as seen earlier, since the purport of the instant right to collateral security established on each real estate (hereinafter “each real estate of this case”) listed in the separate sheet owned by the Re-Appellant is that the original secured obligation is still secured, and therefore, the repayment for the secured obligation as changed according to the above reorganization plan is not completed, the secured obligation of the instant right to collateral security cannot be deemed to have been fully repaid, and it is not erroneous in the misapprehension of legal principles as to the effective scope of the reorganization plan, contrary to the

2. As to the grounds for reappeal regarding interruption of extinctive prescription and period of prescription in company reorganization procedure

A. The interruption of prescription under Article 5 of the Company Reorganization Act following the participation in the company reorganization procedure remains effective as long as the exercise of the right, such as participation in the company reorganization procedure, is continued. After all or part of the obligation under the reorganization plan, in case where the whole or part of the obligation is exempted or reduced, the obligation of the exempted or reduced part is extinguished at the time when the decision to approve the reorganization plan became final and conclusive, and thus the exercise of the right in the reorganization procedure by the obligee is terminated at that time. Therefore, the extinctive prescription of the right to secure another’s property corresponding to that part shall resume from the time when the above decision to approve the reorganization plan becomes final and conclusive. However, if the obligation remains due to the reorganization plan, the interruption of prescription by the participation in the company reorganization procedure remains effective, and if the exercise of the right under the reorganization procedure becomes final and conclusive, it shall resume (see Supreme Court Decision 2007Da112

Meanwhile, according to Article 245(1) of the Company Reorganization Act, with respect to the rights recognized pursuant to the provisions of the reorganization plan based on the reorganization claim or security when the decision to authorize a reorganization program becomes final and conclusive, since the entry in the list of reorganization creditors or security holders has the same effect as a final and conclusive judgment on the company, new company, reorganization creditors, security holders, stockholders of the company, and those who bear an obligation or provide a security for reorganization, as well as the stockholders of the company, Article 165 of the Civil Act applies to “the right recognized pursuant to the provisions of the reorganization program” and the period of extinctive prescription is extended to 10 years (Article 165(1) and (2) of the Civil Act). However, in cases where the whole or part of the reorganization claim or security is exempted or reduced by the reorganization program, the right to the exempted or reduced portion cannot be deemed to be “the right recognized pursuant to the provisions of the reorganization program,”

B. According to the reasoning and records of the lower judgment, the following facts are revealed.

(1) On January 28, 1997, the Han Steel applied for the commencement of the reorganization procedure of this case on July 27, 1999, and received a decision to approve the reorganization plan (hereinafter “the first approval decision”) on September 24, 2004, and received a decision to authorize the alteration plan (hereinafter “the second approval decision”). Each of the above approval decisions became final and conclusive around the date of each decision.

(2) At the time of the commencement of the reorganization procedure of the instant case, the Seoul Trust Bank (Seoul Bank on June 1, 1995, whose name was changed to Seoul Bank on December 2, 2002, and the name was changed to Han Bank on December 2, 2002; hereinafter “I Bank”) reported the secured claim, etc. of the instant right to collateral security as a reorganization claim. According to the reorganization program approved by the first approval decision of the first approval (hereinafter “instant reorganization program”), the first bank became final and conclusive as one of the “financial institutions and other reorganization claims” and entered in the list of reorganization creditors.

(3) According to the instant reorganization plan, the repayment plan for financial institutions, including the secured debt of the instant right to collateral security, and other reorganization claims was 30% of the finalized claim amount corresponding to the principal of the instant principal obligation until 2008, and was repaid in installments once every ten years from 2009 to 2018, and the remainder of the principal and the interest accrued prior to and after the commencement of the instant principal obligation, and the guaranteed obligation was fully exempted. However, pursuant to the reorganization plan approved by the second approval decision of the reorganization plan (hereinafter “instant revision plan”), the repayment plan was modified as it was to exempt the finalized claim amount that was not repaid after the additional repayment.

(4) In the reorganization procedure of this case, on May 19, 2009, the reorganization court rendered a decision to complete the reorganization procedure of this case on the ground that the Han Steel completed the repayment of security and reorganization claims in accordance with the alteration plan of this case.

(5) Since then, on August 31, 2015, the respondent, who acquired the secured claim amounting to KRW 20 billion from one bank via the Korea Asset Management Corporation and the Ilbble Holdings Asset Loan Co., Ltd., applied for the auction of real estate on each of the instant real estate on August 31, 2015. On September 1, 2015, the auction court voluntarily decided to commence the auction on September 1, 2015, Seoul Central District Court 2015ta14588.

C. We examine the above facts in light of the legal principles as seen earlier.

(1) The company reorganization procedure of this case was completed on May 19, 2009 upon completion of the repayment of the reorganization claim and security in accordance with the alteration plan of this case. Thus, in relation to the re-appellant, the part equivalent to 14.442% of the finalized claim amount determined to be repaid in the alteration plan of this case among the secured debt of the right to collateral security of this case (hereinafter "paid part") was extinguished by the repayment before the completion of this case, and only the portion equivalent to 85.558% of the remainder determined to be exempted in the alteration plan of this case (hereinafter "exempt part") remaining without extinguishment.

(2) However, the extinctive prescription of the right against the Re-Appellant, who is a surety to secure another's property, corresponding to the exempted portion of the secured debt of the instant right to collateral, began to proceed with the second approval decision on the instant reorganization plan since July 27, 1997 where the first approval decision on the instant reorganization plan was finalized and the second approval decision on the instant alteration plan became final and conclusive on September 24, 2004.

(3) From then on August 31, 2015, the ten-year extinctive prescription period for the portion of the instant secured claim exempted from the instant secured claim was elapsed due to credit transaction, and the respondent filed an application for the instant auction on August 31, 2015, after the ten-year extinctive prescription period for the rights recognized under the provisions of the finalized reorganization program.

(4) Ultimately, barring any other circumstances, barring any other circumstance, the part exempted from the secured debt of the instant right to collateral security has already expired and expired prior to the application for auction of the instant case. Therefore, it is reasonable to deem that all of the secured debt of the instant right to collateral security, including the portion repaid and exempted, has expired due to the repayment or completion of prescription

D. Nevertheless, the lower court determined otherwise, on the ground that the period of extinctive prescription had been extended to ten years from May 19, 2009 when the decision to terminate the company reorganization procedure of this case became final and conclusive, on the whole of the secured claims of this case, including the part repaid as well as the exempted portion, and on the premise that the extinctive prescription for the exempted portion of the secured claims of this case has not been completed, the lower court rejected the Re-Appellant’s assertion that the entire secured claims of this case were extinguished due to the repayment or the completion of prescription prior to the request for the auction of this case.

Therefore, this judgment of the court below is erroneous in the misapprehension of legal principles as to the interruption of extinctive prescription under company reorganization procedure, which affected the conclusion of the judgment. The ground of reappeal assigning this error

3. Conclusion

Therefore, the judgment of the court below is omitted, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Sang-ok (Presiding Justice)