In cases where an obligor’s act of extinguishing a specific obligation, such as repayment, by borrowing funds from a third party, is not subject to avoidance because rehabilitation creditors, etc. are not disturbed as a whole, and in such cases, whether an agreement between a third party and an obligor may be implicitly made with respect to the termination of a specific obligation (affirmative)

Each subparagraph of Article 100(1) of the Debtor Rehabilitation and Bankruptcy Act provides for the act that a custodian may deny for the debtor’s property after the commencement of rehabilitation procedures by dividing into four types. These four types are commonly referred to as “act detrimental to rehabilitation creditors or rehabilitation secured creditors (hereinafter “ rehabilitation creditors, etc.”)”, namely, “act detrimental to rehabilitation creditors, etc.” or “act detrimental to rehabilitation creditors, etc.” as the requirement to exercise the right to set aside.

Here, the "act detrimental to rehabilitation creditors, etc." includes acts that undermine equality between creditors, in addition to the act of absolutely reducing the debtor's general property, and thus, when the debtor borrows funds from a third party and makes repayment only to a specific creditor, the repayment is in principle prejudicial to equality with other creditors, which is subject to avoidance.

On the other hand, if the entire act is not at a disadvantage to rehabilitation creditors, etc. when determining the total amount of the act, the individual agreement should not be separated, and it should not be judged that the act is harmful only to the individual agreement.

Therefore, where a debtor and a third party have borrowed money from a third party to extinguish a specific obligation, the act of extinguishing an obligation, such as repayment, is agreed to be used by the third party and the debtor to use the loan to extinguish a specific obligation, and the repayment of a specific obligation has been made in accordance with such agreement. In light of all the circumstances such as the time, circumstances, methods, etc. of the loan and repayment, the repayment of a specific obligation, etc. is practically performed through the loan. If, in comparison with the loan transfer and the third party who provided loan and the debtor's relationship, it can be evaluated that the debtor's assets are not reduced after the lapse of the loan, such as payment, etc., in light of the terms and conditions of the loan and the relationship between the third party and the debtor, the act of extinguishing the obligation, such as payment, etc., in question, is not subject to avoidance

Article 100(1) of the Debtor Rehabilitation and Bankruptcy Act

Supreme Court Decision 2001Da39473 Decided September 24, 2002 (Gong2002Ha, 2503), Supreme Court Decision 2005Da71710 Decided July 13, 2007 (Gong2007Ha, 1264), Supreme Court Decision 2009Da75291 Decided May 13, 201 (Gong201Sang, 1125), Supreme Court Decision 2014Da18131 Decided January 14, 2016

Meson C&A Loan Co., Ltd. (formerly: Bath Capital Loan Co., Ltd.) (Bae & Yang LLC, Attorneys Kim Sung-sik et al., Counsel for the plaintiff-appellant)

Defendant (LLC, Kim & Lee LLC, Attorneys Park Dong-sik et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2015Na2038079 decided August 12, 2016

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Each subparagraph of Article 100(1) of the Debtor Rehabilitation and Bankruptcy Act (hereinafter “ Debtor Rehabilitation Act”) provides for the act that a custodian may deny for the debtor’s property after the commencement of rehabilitation procedures by dividing it into four types. Such four types are commonly referred to as “act that causes damage to the rehabilitation creditors or rehabilitation secured creditors (hereinafter “ rehabilitation creditors, etc.”)”, namely, the hazard of the act is the requirement for exercising the right to set aside.

Here, “act detrimental to rehabilitation creditors, etc.” includes a biased act that obstructs equality between creditors as well as a fraudulent act that absolutely reduces the debtor’s general property (see, e.g., Supreme Court Decisions 2005Da71710, Jul. 13, 2007; 2014Da18131, Jan. 14, 2016). In a case where a debtor borrows funds from a third party and makes repayment only to a specific creditor, the repayment is, in principle, prejudicial to equality with other creditors, and thus, is subject to avoidance.

On the other hand, if a total act is not at a disadvantage to rehabilitation creditors, etc. when determining the total amount of the act, the individual agreement should not be separated, and it should not be judged that the act is harmful only to the individual agreement. This is because the hazard of the act done in a single manner has an impact on rehabilitation creditors, etc. (see Supreme Court Decision 2001Da39473, Sept. 24, 2002).

Therefore, in cases where a debtor and a third party have extinguished a specific debt, such as repayment, by borrowing funds from a third party, the third party and the debtor agreed to use the loan to extinguish a specific debt, and the repayment of a specific debt has been made in accordance with such agreement. In light of all the circumstances such as the time, circumstances, methods, etc. of the loan and repayment, the repayment of a specific debt, etc. can be deemed to have been made through the loan in question. If, in comparison with the loan transfer and the third party who provided loan and the debtor's relationship, if the debtor's assets are deemed to have been reduced after the lapse of the loan, the act of extinguishment of debt, such as repayment, etc., such as repayment, does not necessarily mean that the whole act of extinguishment of debt does not interfere with the rehabilitation creditor, etc. (see Supreme Court Decision 2009Da75291, May 13, 2011). The agreement between the third party and the debtor cannot be explicitly and implicitly made.

2. The reasoning of the lower judgment and the evidence duly admitted reveal the following facts or circumstances.

A. On September 24, 2013, the Plaintiff: (a) designated and lent KRW 4.9 billion (hereinafter “instant loan”) to Dongyang International Co., Ltd. (hereinafter “Dongyang International”) on October 15, 2013 as the due date for payment.

B. At around 18:00 on September 27, 2013, Dongyang International deposited KRW 12,161,00,000 (hereinafter “the instant advance”) in advance from the Dongyang Cement Co., Ltd. (hereinafter “Dongyang Cement”), and repaid the instant loan obligations to the Plaintiff at KRW 4,87,527,123 of the said date at around 20:10 on the same day. The Plaintiff paid KRW 6,092,862,30,30 to the Dongyang Leisure Co., Ltd. (hereinafter “Dongyang”) on the same day.

C. At the time, the East Group Strategic Planning Headquarters was performing a role of coordinating financial assistance among affiliates from time to time through a financial conference with the major five affiliate companies of the East Group (Plaintiffs, Yangyang-man International, East Cements, Yangyang Leisure, and Yangyang Co., Ltd.) to grasp the financial status of the affiliates, such as the funding details and financing plan, and based on this, to prepare a “statement on the financial status of major affiliated companies” and accordingly to frequently coordinate financial assistance among affiliates.

D. The instant advance was paid in accordance with the direction of the Strategic Planning Headquarters for the purpose of providing financial support to the East Asian International and the Winter Leisure, which requires additional funds due to the maturity of the commercial paper at the time, etc., and some of them were delivered to the East Leisure through the Plaintiff.

E. The Plaintiff, the East Cement, and the East Tymar International had no effort to provide necessary funds without mutual aid due to deterioration of financial status, etc., and the risk that one company’s default would lead to the chain of chain for other affiliates. As such, the Strategy and Planning Headquarters’s order was executed as they were in compliance with the foregoing direction.

F. The same cement did not have paid advance payments to the East Talter with respect to the trade of flat coal, and there was no reason to pay the instant advance payments to the East Talter personal in the absence of the risk of the foregoing annual chain, etc., on the ground that it was in a chronic financial shortage due to the construction competition depression and profitability aggravation at the time.

G. The instant loan was made against October 15, 2013 at an interest rate of 9.3% per annum, and the instant advance payment did not set the due date and interest rate, and thus, the amount of the instant loan did not decrease in the assets of the same person after the expiration of the obligation, such as reimbursement, compared with the loan transfer.

H. On the other hand, on September 30, 2013, the East Asian International filed an application for commencing rehabilitation procedures with the Seoul Central District Court 2013 Ma188 on September 30, 2013. On October 17, 2013, the above court decided to initiate rehabilitation procedures for the East Asian International. The Defendant and the Nonparty were appointed as the co-manager of the East Asian International, and only the Defendant left as the manager.

3. We examine these facts and circumstances in light of the legal principles as seen earlier.

In light of the payment of the instant advance payment, the timing and developments of the instant repayment, the motive and purpose of the instant repayment, and the subsequent progress, it is reasonable to deem that an implied agreement was made to use part of the instant advance payment between the East Round International and the East Cement as at the time the instant advance payment was made for the extinguishment of the instant loan obligation. In addition, in comparison with the instant advance payment transfer, the repayment for the instant loan obligation was made by part of the instant advance payment pursuant to such agreement. In addition, in comparison with the instant advance payment transfer, there was no decrease in personal assets after the instant repayment act. Accordingly, the instant repayment act is not subject to avoidance as a whole by impairing the rehabilitation creditors, etc.

In the same purport, the lower court rejected the Defendant’s assertion that the instant repayment act is subject to the exercise of the avoidance power under Article 100(1)1 and 3 of the Debtor Rehabilitation Act, and did not err by misapprehending the legal doctrine as to the limitation of the avoidance power and the allocation of burden of proof, as otherwise

4. Therefore, the appeal is 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 Shin (Presiding Justice)