[1] The case affirming the judgment of the court below that the amount of a claim extinguished by conversion of investment in the reorganization procedure against the guarantor before the rehabilitation procedure for the principal debtor begins, cannot be exercised in the rehabilitation procedure for the principal debtor

[2] Where the reorganization plan provides that a conversion of new shares into investment will substitute for the repayment of the reorganization claim, the scope of the amount of the reorganization claim extinguished due to repayment, and whether the principal debtor of the reorganization company or the principal debtor of the reorganization company, who is the guarantor or guarantor, may claim the deduction of the amount of repayment against the reorganization creditor

[3] The case holding that, in case where the market price of new stocks acquired by a reorganization creditor by conversion of investment in reorganization proceedings against a guarantor exceeds the amount that the reorganization plan should substitute for repayment, the amount of such claim shall be deemed to have been repaid only, and therefore the principal debtor may claim the deduction of such amount against the reorganization creditor only

[1] The case affirming the judgment of the court below which held that the amount of a claim extinguished by a conversion of investment into a surety before the commencement of rehabilitation procedures against the principal obligor cannot be exercised in the rehabilitation procedures against the principal obligor on the grounds that it is reasonable to view the bankruptcy procedures and rehabilitation procedures as separate procedures, and that it is difficult to readily conclude that the mere fact that the case of a conversion into the rehabilitation procedures is treated differently from the case of a conversion into the bankruptcy procedure from the rehabilitation procedure to the bankruptcy procedure

[2] Article 240 (2) of the former Company Reorganization Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005) provides that the reorganization plan does not affect any rights of reorganization creditors or security holders who hold 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 reorganization creditors or security holders. However, if the reorganization plan provides that it shall substitute for the repayment of the reorganization claim through conversion into investment for the payment of the reorganization claim, the amount of claim equivalent to the appraised amount to the extent of the market price of new stocks acquired by the reorganization creditors and the amount of the claim equivalent to the appraised amount to be substituted for the payment pursuant to the reorganization plan shall be deemed to have been repaid. In such case, the guarantor who guaranteed the reorganization company if the primary debtor

[3] The case holding that, where the market price of new stocks acquired by a reorganization creditor by conversion of new stocks into investment against a guarantor exceeds the amount that the reorganization plan would substitute for repayment as of the date of entry into force of the issuance of new stocks, the amount of such claim shall be deemed to have been repaid only as a substitute for repayment under the reorganization plan, and therefore, the principal debtor may claim the deduction of such amount against the reorganization creditor

[1] Articles 6 (5), 58 (2) 1, 256 (1) of the Debtor Rehabilitation and Bankruptcy Act, Article 222 (1) 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), Article 240 (2) of the current Debtor Rehabilitation and Bankruptcy Act (see Article 250 (2) of the current Debtor Rehabilitation and Bankruptcy Act), Article 466 of the Civil Act / [2] Article 22 (1) of the former Company Reorganization Act (repealed by Article 206 (1) of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005), Article 240 (2) of the former Company Reorganization Act (see Article 206 (2) of the current Debtor Rehabilitation and Bankruptcy Act), Article 240 (2) of the Debtor Rehabilitation and Bankruptcy Act (see Article 260 (2) of the Debtor Rehabilitation and Bankruptcy Act), Article 260 (2) of the current Debtor Reorganization Act) of the Act

Plaintiff Limited Liability Company

Intervenor Co., Ltd. (Attorney Chang Yong-sung et al., Counsel for the intervenor-appellant)

Dong A Construction Industry Co., Ltd., a receiver and receiver of Dong Adong Construction Industry Co., Ltd.

Seoul High Court Decision 2009Na10791 decided June 5, 2009

The judgment below is reversed and the case is remanded to Seoul High Court.

We examine the grounds of appeal.

1. Regarding ground of appeal No. 1

According to the reasoning of the judgment below, the court below held that rehabilitation procedures go against the procedure of coordinating legal relations between interested parties, such as creditors, shareholders, and equity right holders with respect to the debtor faced with bankruptcy failure due to financial difficulties and promoting efficient rehabilitation of such debtor or debtor's business. The bankruptcy procedures differ in the purpose, procedure, regulation principle, etc. of two systems; where rehabilitation procedures are commenced while bankruptcy procedures are in progress, the previous bankruptcy procedures are suspended (Article 58 (2) 1); where rehabilitation procedures are commenced, bankruptcy procedures are suspended (Article 256 (1)); where rehabilitation procedures are authorized, suspended bankruptcy procedures are invalidated (Article 256 (1)); where bankruptcy procedures are commenced prior to the rehabilitation plan approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval rehabilitation approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval approval rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation rehabilitation.

2. Regarding ground of appeal No. 2

Article 240(2) of the Company Reorganization Act (repealed by the enactment of the Debtor Rehabilitation Act, Act No. 7428 of March 31, 2005) provides that the reorganization plan does not affect any rights held by any reorganization creditor or security holder against any guarantor or any other person who bears obligations together with the company, and any security provided by any person other than the company for any reorganization creditor or security holder. However, in a case where the reorganization plan provides that the repayment of the reorganization claim is substituted by a conversion into investment, the amount of claim equivalent to the appraised amount shall be deemed to have been paid to the extent of the market price of the new stocks acquired by the reorganization creditor and the amount to be substituted by the repayment pursuant to the reorganization plan. In such a case, where the main debtor is the reorganization company, the guarantor who guarantees the reorganization company, and where the guarantor is the reorganization company, the primary debtor may claim a deduction of the amount to be paid to the reorganization creditor. In addition, unless there is any agreement or agreement on the value of the existing bonds extinguished due to conversion into investment between the creditor and the debtor, it shall be deemed that the existing claim has been repaid as of the value of new stocks (see.

According to the reasoning of the judgment below, in the reorganization proceedings against the non-party corporation that was conducted by the Seoul District Court on June 12, 2001 after obtaining the approval of the reorganization plan from the Seoul District Court on March 28, 2008, upon receiving the decision to complete the reorganization proceedings on March 28, 2008, the plaintiff was paid 610,000 shares of the non-party corporation in the manner of allocating 1 share per common share (25,000 won per share) under the reorganization plan. The share price per non-party corporation on June 1, 2006, which was the effective date of the new shares, is equivalent to 72,000 won per share. Thus, in this case where the market price of the non-party corporation's new shares as at the time of the issuance of the new shares exceeds the amount that the market price of the non-party corporation's new shares as at the effective date of the issuance of the new shares, the plaintiff shall be deemed to have been assessed as 610,0050 won per share.

Nevertheless, the court below held that the amount of KRW 43,920,000 calculated by applying the market price of 72,000,000, which was the effective date of the issuance of new shares by the non-party corporation as of June 1, 2006, shall be deemed to have been repaid. In this case, the court below erred by misapprehending the legal principles as to the scope of extinguishment of the principal obligation where the conversion of new shares into investment is to substitute for the payment of all or part of the reorganization claim or security in the manner of issuing new shares under the reorganization plan of the company that is the guaranteed debt reorganization company, which

Supreme Court Decision 202Da12703, 12710 (Counterclaim) Decided January 10, 2003, and Supreme Court Decision 2005Da34643 Decided April 13, 2006, where a debt is extinguished as of the date when the issuance of new stocks takes place in lieu of the payment of the reorganization claim or security in lieu of the market price of the new stocks acquired by the reorganization creditor or security holder as of the date when the issuance of new stocks takes place, are related to the time when the value of the stocks converted into investment falls short of the amount that the reorganization plan would substitute for the payment of one share under the reorganization plan as of the date when the issuance of new stocks takes place, and the issue is different from this case where the value of the stocks converted into investment exceeds the amount that the reorganization plan would have paid per share as of the date when the issuance of new stocks

3. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Ahn Dai-hee (Presiding Justice)