Whether Article 35 of the former Act on the Budgeting and Management of Subsidies applies to indirect subsidy program operators and indirect subsidy programs that prohibit the use of, transfer, exchange with, or lending of, or offering as security, any property acquired with, a subsidy or the utility of which increased without approval from the head of a central government agency after completion of a subsidy program (negative

Articles 2 and 35 (see current Article 35(3) of the former Act on the Budgeting and Management of Subsidies (Amended by Act No. 10898, Jul. 25, 201); Article 35(3) of the Act on the Budgeting and Management of Subsidies

Supreme Court Decision 2015Da247257 Decided November 15, 2018 (Gong2019Sang, 4)

Nonghyup Bank Co., Ltd. (Attorney Park Jong-ok et al., Counsel for the defendant-appellant)

An agricultural corporation limited partnership company

Gwangju District Court Order 2017Ra427 dated August 3, 2018

The order of the court below is reversed and the case is remanded to the Gwangju District Court.

The grounds of reappeal are examined.

1. According to the record, the following facts are revealed.

A. From around 2001 to 2010, the Barran-gun granted KRW 4.16 billion in total by adding the national expenses, Do expenses, and military expenses to the debtor’s agricultural company-affiliated limited partnership companies (hereinafter “debtor”) with subsidies for projects for supporting the establishment of the agricultural product distribution center. The debtor acquired the real estate Nos. 3, 4, 5, 27, and 28 from among the real estate listed in the attached Form of the lower judgment (hereinafter “the instant subsidy”).

B. The debtor concluded a mortgage contract with the creditor on five occasions in total from March 29, 2002 to May 30, 201, as to the whole real estate indicated in the judgment below, and completed the registration of establishment of a neighboring mortgage to the creditor. The debtor did not obtain approval from the head of the central government agency in the process.

C. On March 2014, a creditor filed an application for an auction of real estate rent with the Gwangju District Court, based on the foregoing right to collateral security, and received a decision to commence the auction from the said court.

2. On the premise that a debtor is an indirect subsidy program operator under the former Subsidy Budget and Management Act (amended by Act No. 10898, Jul. 25, 2011; hereinafter “former Subsidy Act”), the lower court maintained the first instance judgment that dismissed the creditor’s request for auction on the ground that the right to collateral security established on the instant subsidy real estate was established contrary to Article 35 of the former Subsidy Act, and thus, was null and void.

3. However, such determination by the lower court is difficult to accept. The reasons are as follows.

A. Article 35 of the former Subsidy Act provides, “The owner of a subsidy program shall not use, transfer, exchange, or lend, or provide as security, important property acquired with a subsidy or the utility of which increased, for any purpose that violates the purpose of the grant of a subsidy, even after the completion of the subsidy program concerned without the approval of the head of the central government agency: Provided, That the foregoing shall not apply to cases prescribed by Presidential Decree.” Article 35(3) of the Act on the Management of Subsidies amended by Act No. 10898, Jul. 25, 2011 provides, “The subsidy program operator or indirect subsidy program operator shall not perform any of the following acts with respect to important property without the approval of the head of the central government agency even after the completion of the subsidy program concerned.”

In full view of the nature and legislative intent of Article 35 of the former Subsidy Act, and the regulatory structure, and method, etc. of the former Subsidy Act for “subsidies and indirect subsidies” and “indirect subsidies and indirect subsidies”, Article 35 of the former Subsidy Act shall not apply to indirect subsidies and indirect subsidies (see Supreme Court Decision 2015Da247257, Nov. 15, 2018).

B. Nevertheless, under the premise that Article 35 of the former Subsidy Act applies to a debtor who is an indirect subsidy program operator, the lower court determined that the establishment registration of a neighboring mortgage established by the debtor on the instant subsidy real estate was null and void. In so determining, the lower court erred by misapprehending the legal doctrine on the scope of application of Article 35 of the former Subsidy Act

4. Therefore, the order of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Dong-won (Presiding Justice)