The appeal is dismissed.

The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. As to the grounds of appeal Nos. 1 and 2

A. Whether set-off is permitted under the proviso of Article 422 subparag. 4 and proviso of Article 422 subparag. 2(b) of the Debtor Rehabilitation and Bankruptcy Act (hereinafter “ Debtor Rehabilitation Act”), (1) main text of Article 145 subparag. 4 of the Debtor Rehabilitation Act restricts the prohibition of set-off of rehabilitation claims against a debtor, when the debtor, for whom rehabilitation procedures commenced, acquires the rehabilitation claim knowing the critical situation of the debtor, such as suspension of payment, application for commencement of rehabilitation procedures, etc.

In addition, Article 4 (4) (proviso) and 2 (proviso) (Na) of the same Act allow offset against the rehabilitation claim when the rehabilitation debtor acquires the rehabilitation claim due to the cause that occurred before the debtor becomes aware that the debtor has suspended the payment of the rehabilitation debtor, the application for commencement of rehabilitation procedures, etc.

As such, the purport of exceptionally allowing a set-off under the Debtor Rehabilitation Act is that acquiring rehabilitation claims has occurred after the debtor faces a critical situation, but it is necessary to protect the expectation of rehabilitation creditors against set-off in cases where the cause of the occurrence of claims has already been formed prior to that time. In such cases, the said set-off is allowed.

In light of the purport of this provision, the term “reasons” in the proviso of Article 145 subparag. 2(b) means a case where it is deemed justifiable to protect rehabilitation creditors’ trust in relation to the security action of a set-off by taking into account the specific circumstances, as well as to have a direct effect on the obligee’s expectation of set-off.

(see, e.g., Supreme Court Decision 2013Da200513, Sept. 24, 2014; Supreme Court Decision 2015Da252501, Mar. 15, 2017). However, the Debtor Rehabilitation Act was declared bankrupt under the main sentence of Article 422 subparag. 4, as in the bankruptcy proceeding.