In cases where a lower-ranking mortgagee was at a disadvantage than simultaneous dividends as a result of a prior auction of a part of real estate owned by the employer, whether the latter part of Article 368(2) of the Civil Act shall apply mutatis mutandis in bankruptcy proceedings against the employer that commenced thereafter, and whether a lower-ranking mortgagee’s claim is treated as a estate claim like a wage claim (negative)

The so-called statutory collateral right to preferential payment of wage claims is entitled to be paid in preference to claims secured by mortgages, taxes, etc. on the whole property of the employer. In the event that some of the real estate owned by the employer was sold first and the wage creditors have received preferential payment from such auction proceeds in preference to the simultaneous distribution of wage claims from several real estate in accordance with Article 368(1) of the Civil Act, the latter part of Article 368(2) of the Civil Act shall apply mutatis mutandis to the mortgagee who has received disadvantage as above in applying the latter part of Article 368(2) of the same Act. If the wage creditors have received simultaneous dividends from several other real estate at the same time, he/she may be paid in preference to other real estate in subrogation to the extent of the amount that he/she could have received reimbursement from other real estate at the same time. However, such subordinated mortgagee’s subrogation right is not merely a matter of allowing the exercise of preferential payment right in subrogation other real estate similar to those attached to wage claims, and thus, it does not mean that the employer’s rehabilitation claim and other real estate assets should be paid in accordance with Article 28308(3).

Article 368 of the Civil Act, Article 38 of the Labor Standards Act, Article 38 subparagraph 10 of the former Bankruptcy Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005) (see current Article 473 subparagraph 10 of the Debtor Rehabilitation and Bankruptcy Act)

Supreme Court Decision 200Da32475 Decided September 29, 2000 (Gong2000Ha, 2216) Supreme Court Decision 2002Da48399 Decided December 10, 2002 (Gong2003Sang, 351) Supreme Court Decision 2005Da34391 Decided September 29, 2005

Plaintiff 1, et al. (Law Firm Ful, Attorneys Kim Chang-hoon et al., Counsel for the plaintiff-appellant)

Defendant (Law Firm Won, Attorneys Kang Jong-soo et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2009Na7207, 7214 decided June 17, 2009

All appeals are dismissed. The costs of appeal are assessed against the Plaintiff (Counterclaim Defendant).

We examine the grounds of appeal.

The right to preferential payment of wage claims is so-called legal security rights that can be paid preferentially to claims secured by mortgages, taxes, etc. on the whole property of the employer. However, in cases where several real estate owned by the employer were sold first and the wage creditors have been given preferential payment right from such auction proceeds, and the mortgagee of such auction real estate was at a disadvantage than simultaneous dividends from several real estate under Article 368(1) of the Civil Act, the latter part of Article 368(2) of the Civil Act shall apply mutatis mutandis, and where the wage creditors have received such disadvantage at the same time from several real estate at the same time, the mortgagee who received such disadvantage shall be entitled to preferential payment from other real estate in subrogation to the extent of the amount which would have been able to receive reimbursement from other real estate at the auction proceedings (see Supreme Court Decision 2005Da34391, Sept. 29, 2005). However, such subordinate mortgagee’s right to preferential payment rights shall not be deemed to have been granted prior to the bankruptcy procedure of the employer, and thus, it does not constitute an employer’s right to preferential payment claims under the Civil Act.

Examining the facts acknowledged by the court below in light of the above legal principles, the court below held that even if the wage creditors of the non-party corporation prior to the bankruptcy were paid dividends in preference to the plaintiffs who are the mortgagee in the auction procedure to exercise the security right, the latter part of Article 368 (2) of the Civil Act shall apply mutatis mutandis to the judgment that the plaintiffs cannot become the estate creditor in subrogation of the wage creditors in the bankruptcy procedure of this case by applying the latter part of Article 368 (2) of the Civil Act, and there is no error of law that affected the conclusion of the judgment by misapprehending the legal principles as to analogical application of the latter part

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 Young-ran (Presiding Justice)