[1] In a case where the collective investment business entity disposes of collective investment property in a large quantity at a time of redemption and in a short period, causes a loss to significantly decline in the value of the collective investment property and resulting in loss to investors remaining from the redeemed investors, whether it constitutes “the case where accepting a claim for large amount of redemption is likely to undermine equality among investors,” which is the ground for postponement of redemption (affirmative) / Standard time to determine whether there exists a ground for postponement of redemption

[2] In a case where eight institutional investors among the total 11 institutional investors, who are fund beneficiaries, claim redemption of approximately KRW 150 billion out of the size of the fund assets, and Gap decided to postpone redemption, the case affirming the judgment below holding that Gap company’s postponement of redemption was lawful

[1] Where an investor claims redemption of collective investment securities, the collective investment business entity shall repurchase the collective investment securities at the base price calculated in accordance with the main sentence of Article 236(1) of the Financial Investment Services and Capital Markets Act, and where a claim for redemption is made in bulk at a time, measures to dispose of the collective investment property in a short-term manner are necessary to create the financial resources to be used for the redemption price. In such cases, losses may arise that may significantly decline in the value of the collective investment property depending on the type, composition, and scale of the collective investment property, the market transaction situation. If the collective investment securities are redeemed at a base price not reflected in such losses, it may result in the occurrence of losses that remains from the repurchase investors first and may result in damage to the investor, which is the essence of the collective investment, or the principle of performance distribution or the principle of equal treatment of beneficiaries, which is one of the grounds for postponement of redemption. In addition, it shall be determined as at the time of postponement of redemption, and it shall be determined as at the time of postponement of redemption, and it shall not be deemed unlawful or invalid only after the verified.

[2] In a case where eight institutional investors among the total 11 institutional investors, who are fund beneficiaries, claim redemption of the beneficiary certificates worth approximately KRW 150 billion out of the size of the fund's assets, and Gap decided to postpone redemption, the case affirming the judgment below holding that Gap company's postponement of redemption is lawful, on the ground that the above claim for redemption constitutes "a case where Gap would accept a claim for large-scale redemption," and that the above claim for redemption would be "a case where Gap would accept a claim for large-scale redemption," and that where the disposal of assets is enforced in a short period to accept the claim for redemption, it is anticipated that there would be a problem of equity among beneficiaries.

[1] Articles 235(1) and (5), 236(1), and 237(1) of the Financial Investment Services and Capital Markets Act; Article 256 subparag. 2(c) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act / [2] Articles 235(1) and (5), 236(1), and 237(1) of the Financial Investment Services and Capital Markets Act; Article 256 subparag. 2(c) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act

Young Life Insurance Co., Ltd. (Law Firm Sejong, Attorneys Kim Sang-ok et al., Counsel for the plaintiff-appellant)

Alley Mans Investment Advisory Co., Ltd. (Attorneys Son Ji-yol et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2013Na43361 decided February 14, 2014

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

The grounds of appeal are examined.

Article 235(1) of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) provides that an investor may claim for redemption of collective investment securities at any time. Article 235(5) of the said Act provides that where a redemption price is paid, it shall be limited to money owned as collective investment property or money created by disposing of the collective investment property within the scope of the collective investment property, except where all investors consent to the collective investment scheme. The main text of Article 236(1) of the said Act provides that a collective investment business entity shall be the base price calculated after the date of redemption when it redeems collective investment securities. Meanwhile, Article 237(1) of the said Act provides that “Where an investment trust or a collective investment business entity or an investment company of an undisclosed investment association, etc. becomes unable to redeem collective investment securities on the redemption date as stipulated in collective investment agreement due to reasons prescribed by Presidential Decree, such as where it is impossible to dispose of assets that are collective investment property, redemption of the collective investment securities may be postponed.” Article 256 subparag. 2(c) of the Enforcement Decree of the Capital Markets Act provides that “in cases where equity is likely to accept.”

According to the above provisions, when an investor claims redemption of collective investment securities, the collective investment business entity shall repurchase collective investment securities with the base price calculated in accordance with the main sentence of Article 236(1) of the Financial Investment Services and Capital Markets Act. If a claim for redemption is made in bulk in lump sum, measures to dispose of the collective investment property in a short period to create financial resources to be used for the redemption price are necessary. In such cases, losses may occur that significantly drop in the value of the collective investment property depending on the type, composition, and scale of the collective investment property, market trading circumstances, etc. In such cases, if collective investment securities are redeemed at a base price that is not reflected in such losses, such losses may result in the loss inflicted upon the investor remaining behind the repurchase in the first place due to the loss incurred by the investor, which is the essence of the collective investment, or the principle of performance distribution or the principle of equal treatment of beneficiaries, which is one of the grounds for postponement of redemption. In addition, whether there is any reason for postponement of redemption exist shall be determined at the time of postponement of redemption, and it shall not be unlawful or invalid only after the confirmed.

The court below acknowledged the fact that eight institutional investors among the 11 institutional investors of the fund of this case claim redemption of approximately KRW 150 billion out of the total assets size of the fund of this case until the market of the fund of this case is closed on the date of announcement, and that the defendant decided postponement of redemption by considering that there is a problem in equity between the requesting investor and the remaining investors due to the decline in the value of the beneficiary certificates when responding to the above claim for redemption, etc. In light of the circumstances stated in its reasoning, the above claim for redemption falls under the case of accepting large amount of claim for redemption, and the above claim for redemption is likely to bring about a problem in equity among the beneficiaries if the disposal of assets is enforced in a short period to accept the claim for redemption. Thus, the court below determined that the defendant's postponement of redemption was legitimate.

Examining the reasoning of the judgment below in light of the aforementioned legal principles, the above determination by the court below is acceptable. Contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles regarding the grounds for postponement of redemption or the requirements therefor, or by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules.

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.

Justices Kim Yong-deok (Presiding Justice)