[1] Whether it is permissible to distribute all or part of the amount equivalent to the liquidation value of the object to a reorganization security holder after the sale of the object of the security (negative in principle)

[2] Whether the reorganization program, which is otherwise determined by different methods such as repayment, is in violation of the principle of equality, depending on whether the liquidation value of individual security holders’ collateral exceeds the amount of the security (negative)

[3] In the alteration of the terms and conditions of the reorganization plan to pay the principal and interest to the security holder, whether the amount equivalent to the liquidation value should also be distributed to the interest if the liquidation value of the collateral is equal to or superior to the principal and interest of the security (affirmative)

[1] In light of the provisions of each subparagraph of Article 234(1) of the former Company Reorganization Act (repealed by Article 2 of the Addenda of the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005), the sale of collateral of the reorganization security and distribution of all or part of the amount equivalent to the liquidation value of the collateral to the reorganization security holder, which is not the proceeds from sale, to the stocks of the reorganization company, after selling the collateral of the reorganization security, does not change from the reorganization security holder to the status of the highest security holder in the order of priority in the reorganization company where the risk of bankruptcy or the change of additional rights remains, while deprived the security holder of the minimum right to recover the claim from the proceeds from the proceeds from the liquidation of the reorganization company, and then, it does not change the status of the reorganization security holder in the order of priority in the reorganization company where the security holder consented or the shares of the reorganization company have the value substantially equivalent to the cash, and in terms of liquidity and stability, etc., it cannot be permitted as it damages the real value of the reorganization.

[2] Although discrimination against a reorganization claim or security of the same nature, which originally differs from the rate of reduction or exemption of, or the period for repayment of, rights without reasonable grounds, in relation to the principle of liquidation value guarantee, liquidation value that an individual security holder can receive from the collateral must be guaranteed. Such liquidation value must vary depending on the type of the collateral, the order of security, etc. Therefore, the reorganization program cannot be deemed to have violated the principle of equality on the ground that a reorganization security holder, who holds the liquidation value of the collateral above the amount of the reorganization security, paid the entire amount of the reorganization security and determined the amount of the reorganization security to the security holder who fails to do so.

[3] The reorganization plan becomes a basic norm for the implementation of reorganization proceedings in the future. The contents such as the alteration of rights of the reorganization plan, the method of repayment, the scope of existence of the reorganization plan, etc. shall be freely determined to the extent that private autonomy is permitted. If the reorganization plan provides that the principal shall be repaid in installments to the reorganization security holder, but interest as well as the principal shall be paid in addition to interest on each divided principal, it shall be included in the scope of the claim recognized as a security. Thus, in preparing the reorganization plan to modify the repayment conditions of the collateral, if the liquidation value of the collateral is equal to, or superior to, the principal of the security interest as well as the interest, the amount equivalent to the liquidation value of the collateral shall be distributed to the security holder

[1] Articles 28(1) (see current Article 217(1)), 229 (see current Article 229(1) (see current Article 218 of the Debtor Rehabilitation and Bankruptcy Act), 233(1)2 (see current Article 243(1)2 of the Debtor Rehabilitation and Bankruptcy Act), 234(1) (see current Article 244(1) of the former Company Reorganization Act) / [2] Article 229 of the former Company Reorganization Act (Amended by Act No. 7428, Mar. 31, 2005; Article 217(1) (see current Article 218(1)); Article 233(2) of the Debtor Rehabilitation and Bankruptcy Act (see current Article 24(3) of the Debtor Rehabilitation and Bankruptcy Act); Article 234(1) of the former Company Reorganization Act (see current Article 24(1) of the Debtor Rehabilitation and Bankruptcy Act); Article 229(2) of the former Debtor Rehabilitation and Bankruptcy Act (see current Article 2314(2) of the Debtor Rehabilitation and Bankruptcy Act)

[3] Supreme Court Decision 2005Da33138 decided Oct. 27, 2005 (Gong2005Ha, 1843)

The administrator of Hanyang Island Co., Ltd. (Law Firm Yang, Kim & Lee LLC, Attorneys Lee Jong-chul et al., Counsel for the plaintiff-appellant)

Han Il Island Trade Union (LLC, Kim & Lee LLC, Attorneys Lee Jong-chul et al., Counsel for the defendant-appellant)

Busan High Court Decision 200Na14484 decided May 1, 200

Korea Exchange Bank, Inc.

Busan High Court Order 2004Ra77 dated October 31, 2005

The special appeal against the Korea-Japan Trade Union, a special appeal is dismissed. Of the order of the court below, the part of the judgment against the limited company specializing in the special appeal against the Busan High Court is reversed, and this part of the case is remanded to the Busan High Court. The special appeal against the Dongyang-do Co., Ltd., a special appeal is dismissed.

1. Determination as to the legitimacy of a special appeal by the Korea-Japan Trade Union

According to Articles 237(1), 11, and 270(3) 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), only a person who has an interest in the trial can file an immediate appeal against the decision to approve a plan to revise the reorganization plan. The term "interest" refers to a "legal interest". As such, the term "person entitled to an immediate appeal against the decision to approve the plan to revise the reorganization plan" refers to a person whose interest is infringed upon upon upon upon upon by the validity of the plan to revise the reorganization plan (see Supreme Court Order 2005Da60, Jan. 20, 2006). This legal principle equally applies to the case where a special appeal is filed against the decision to review the appeal.

According to the reasoning of the order of the court below, the court below found that the reorganization court rendered a decision to approve the reorganization plan modification plan on the Han Il-soon Co., Ltd., Ltd. (hereinafter referred to as the "Masan District"), which sentenced on June 18, 2004, on the ground that the reorganization court violated the nature of the security rights held by the reorganization company security holders in the Msan District, and set the protection provisions of rights as stated in its holding for the Msan Site security holders and approved the reorganization plan modification plan on the grounds that it violates the principle of fairness and fairness, and thus violates the fairness and fairness. Thus, there is no evidence to deem that the interests of the KUB union, which is a special resistance upon the establishment of the reorganization plan modification plan approved by the court below, are infringed upon upon upon upon upon the validity of the protection provision of rights. Accordingly, the aforementioned special appellant is not deemed to have a legal interest in the order of the court below. Accordingly, the special appellant's special appeal is unlawful.

2. Determination on the grounds for special appeal by the Dongyang-man Co., Ltd., the administrator of the non-party-party-party-party-party-party-party-party-party-party-appellanted

A. Even if it is necessary to promote the maintenance and reorganization of the reorganization company by changing the rights of the reorganization creditors and security holders through the reorganization procedure, the substantial value of the rights should be given to each reorganization creditor and security holder so that they can minimize the damage therefrom without inherently infringing upon the rights. Here, the substantial value of the rights should be given to the reorganization creditors and security holders who oppose the reorganization program adopted, or the right holders who consent to the reorganization plan rejected, at least the amount of liquidation of the reorganization company, at least the amount of the value of the distributed reorganization (value of liquidation). Thus, it would be prejudicial to the essential part of the property rights guaranteed by the individual reorganization creditors, security holders, or right holders who have consented to the reorganization program. Therefore, in the case where the reorganization program has been adopted by the majority of the reorganization creditors and security holders, the reorganization court approves the reorganization program, or, notwithstanding the opposition to the provisions consenting to the reorganization program, the reorganization court approves the reorganization program with the contents of a distribution less than the liquidation value, or the approval of the reorganization program rejected by the reorganization court, regardless of the opposition to the reorganization program.

On the other hand, the issue of whether the reorganization plan satisfies the requirements for authorization shall be determined at the time of determining whether to approve the reorganization plan, i.e., when the reorganization court decides whether to approve the plan. However, in the case where an immediate appeal is filed against the decision to approve the reorganization plan, it shall be determined at the time of the decision of the appellate court in light of the nature of the appellate trial, and any matter to be considered by the appellate court shall also include any circumstance that occurred after the decision of the appellate court to approve the reorganization plan. Therefore, in cases where it is found that the market price or liquidation value of the collateral is different from that anticipated at the time of the decision of the appellate court to approve the reorganization plan after the decision of the appellate court to approve the reorganization plan, it shall also be examined and determined whether the reorganization plan guarantees liquidation value

Examining the reasoning of the order of the court below in light of the above legal principles, the court below is just in holding that the decision of the reorganization court to approve the reorganization plan was unlawful on the ground that the payment clause of the revised reorganization plan of this case against the reorganization security holders in the Msan site was insufficient to protect the rights of the reorganization security holders in Msan site because it was insufficient to protect the rights of the reorganization security holders in Msan site because the repayment clause of the revised reorganization plan of this case did not fall short of the liquidation value, contrary to the sale price anticipated in the revised reorganization plan of this case, and it did not err by violating the principle of fairness and deliberation, which is the requirements for authorization of the reorganization plan modification plan, as otherwise alleged in the special claim and the ground.

B. In light of the provisions of each subparagraph of Article 234(1) of the former Company Reorganization Act, the distribution of the amount equivalent to the liquidation value of the collateral to the reorganization security holder after the sale of the collateral, and the distribution of all or part of the collateral to the reorganization company’s stocks, which is not the proceeds of sale, shall not be permitted as it damages the substantial value of the security, as it does not result in the deprivation of the minimum right to recover the claim from the proceeds of sale of the collateral by exercising the security right against the reorganization company’s bankruptcy from the reorganization security holder upon the reorganization of the reorganization company, unless there are special circumstances such as that the security holder consented to the distribution of the amount equivalent to the liquidation value of the collateral, or that the shares of the reorganization company have the equivalent value to the cash, and that it has the nature of cash equivalent to the cash in terms of liquidity and stability.

In the instant case where there is no evidence to support the special circumstances, such as that the shares of the Hansan Island have the value substantially equivalent to cash and have the nature of equivalent to cash in terms of liquidity and stability, etc., the court below is justified in holding that the payment clause of the modified plan of this case, which provides for the total conversion of 22% of principal into equity, cannot be properly protected by the security holders of Msan site, and to set the protection clause of rights, which provides for the payment of cash in accordance with the proceeds of the sale of the Msan Factory site, is just, and contrary to the special grounds, the court below did not err in violating the principle of fairness and fairness, which are the requirements for the approval of the modified plan, as alleged in the grounds for special appeal.

C. Although discrimination against a reorganization claim or security of the same nature is not permitted without reasonable grounds, such as the rate of reduction or exemption of a right or the period of repayment for a right, in relation to the principle of liquidation value guarantee, liquidation value, which an individual security holder can receive from the collateral, must be guaranteed. Such liquidation value must vary depending on the type of the collateral, the order of security, etc., and thus, in the reorganization program, the amount of the reorganization security should be fully repaid to the reorganization security holder whose liquidation value of the collateral exceeds the amount of the collateral, and the reorganization program cannot be deemed to have violated the principle of equality, on the ground that the reorganization program stipulated the contents such as the reduction or exemption of part of the security amount

Therefore, the court below is just in holding that it was unlawful to determine that the act of converting 22% of the principal of the securities to the security holders with respect to other collateral in the modified plan of this case, even though the court below decided that the reorganization security holders with respect to other collateral should convert the principal into equity, and it did not err by violating the principle of equality, which is the requirements for authorization of the reorganization plan modification plan, as alleged in the special appeal and ground.

3. Determination on the grounds for the special appeal by a limited liability company specializing in the primary securitization

The reorganization program becomes a basic norm for the implementation of reorganization proceedings in the future. To the extent that private autonomy is permitted, the contents such as the change of rights, method of repayment, scope of existence of reorganization securities, etc. can be freely determined (see Supreme Court Decision 2005Da33138, Oct. 27, 2005). Thus, if the reorganization program provides that security holders shall pay the principal in installments, but the interest shall be added to each divided principal, it shall be included not only in the principal but also in the scope of claims recognized as security. Thus, if the reorganization program changes the conditions for repayment of the security in accordance with the reorganization program, and if the liquidation value of the collateral is equal to or superior to the principal and interest of the security, the reorganization value of the collateral shall not be distributed to the security holders as well as the principal and interest, it does not violate the principle of liquidation value guarantee.

In light of the above legal principles, the reasoning of the order of the court below and the records, it is clear that the principal and interest of the bonds of the company specializing in the Masan District as of May 31, 2004, in total, KRW 26,716,01,99 of the limited liability company specializing in the Masan District as of May 31, 2004 (hereinafter “the special appellant”), shall be repaid in full in an amount equivalent to the liquidation value out of the proceeds of sale of the Masan Factory Site amounting to KRW 285 billion. The above bonds and interest of the bonds shall be within the amount of KRW 39,579,698,836 of the securities at the initial due date for inspection. Thus, for the Masan District, the above bonds and interest of the bonds shall be liquidated only only if they are paid in cash with the above proceeds of sale as well as the principal of the bonds in the Masan District District, or if they are distributed corresponding thereto.

Nevertheless, the court below's decision that did not set a provision of the protection of rights only for principal and for deferred interest and interest holders with respect to the difference of special appellant, is against the provisions of Article 23 of the Constitution concerning the guarantee of property rights by damaging the essential part of the property rights guaranteed in the reorganization procedure of this case. Thus, the ground for the special appeal by the above special appellant pointing this out is justified.

4. Conclusion

Therefore, without further proceeding to decide on the remainder of the special appeal by the special appellant, the special appeal by the Hanyang Island Trade Union is dismissed. Of the order of the court below, the part concerning the special appeal by the special appellant is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The special appeal by the Dongyang-do Co., Ltd., the administrator of the non-party's lawsuit by the non-party of the Hanyang Island, a special appellant, is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Nung-hwan (Presiding Justice)