Busan High Court Decision 200Na14488 decided May 1, 2007

Intervenor 1 and 30 others (Attorney Tae-tae, Counsel for the intervenor-appellant)

The administrator of Han Han-chul Co., Ltd. (Law Firm, Kim & Lee, Attorneys Park Jong-chul, Counsel for the plaintiff-appellant)

Changwon District Court Decision 98No799 dated June 18, 2004 to authorize the alteration plan of the company reorganization plan

1. The order of the court below is modified as follows.

For the appellant, the attached protective clause shall be determined and the modification plan of the reorganization plan of this case shall be approved.

2. All applications for intervention shall be dismissed;

1. Basic facts

According to the records, the following facts are recognized:

(a) Progress of company reorganization procedure;

On July 3, 1998, after the filing of an application for the commencement of a company reorganization procedure and the preservation of company property, Korea-Japan Co., Ltd. (hereinafter referred to as the "Adjustment Co., Ltd.") whose purpose business is the chemical fiber manufacturing business, etc., the following procedures were completed in the court below.

(1) The decision on August 1, 1998 on the disposition of preserving the company's property

(2) Commencement order of company reorganization procedure on January 19, 1999

(3) On March 16, 1999, holding of the first meeting of interested persons, reorganization claims, etc.

(4) Submission of reorganization programs by a receiver on July 30, 1999

(5) On January 28, 200 and February 11, 200, the approval of the first and second amendment of the reorganization programs by the court of original judgment

(6) On February 16, 200, the meeting requirements for resolution with the consent of 84.8% of security holders and 71.3% of reorganization creditors-related reorganization creditors by holding the second and third meeting of interested persons and special investigation date such as reorganization claims, etc. for the examination and resolution of reorganization programs.

(7) On February 23, 200, the decision of the court below to approve the original reorganization program

B. Decision to approve the alteration plan of the reorganization plan of this case

(1) Submission of a modified reorganization plan by the receiver on February 23, 2004

(2) Permission on June 14, 2004 to revise the reorganization program modification plan by the original court

(3) On June 16, 2004, the meeting of interested parties for the review and resolution of the plan to modify the reorganization plan is held, and the 81.2% of the security holders and the 78.6% of the reorganization creditors-based agreement shall meet the requirements for resolution.

(4) On June 18, 2004, the court below's approval of the modification plan of the reorganization plan of this case (hereinafter "the modification plan of this case")

C. Status of appellant and summary of the amendment plan of this case

The appellant is disputing the portion of “the method of changing the right of the principal obligation of reorganization security interest” in the instant modification plan as follows, as a security holder of the Msan Factory Site [the fifth project site (this factory1), the sixth project site (this factory2), the sale (this factory2), and the building site (this factory2) site in the attached Table 8-1 of the instant modification plan, which are 84-1 factory site in Msan-dong, Gyeyang-dong 84-1 factory site in Msan-dong 104,062 site 28 square meters, etc.]. The summary of the instant modification plan related to the said portion is as follows.

(i) Method of changing and repaying the principal obligation of the security;

(A) In the case of a security holder of the Masan Site (security holder who has a security right to the Masan Factory Site), 22% of the principal shall be converted into equity, and the remaining principal shall be paid out of the proceeds of sale of the Masan Site (the proceeds of sale of the Masan Factory Site, the proceeds of sale of the Masan Factory Site and the proceeds of reorganization claim shall be used in the preferential repayment of the 150 billion won), less the amount repaid by the security holder and the reorganization creditor, and the remaining principal shall be paid in equal installments during the period from the 6th year (2006) to the 10th year (2010) and paid on the due date. Between the security holder of the Masan Site, the proceeds of sale of the Masan Site site shall be allocated as shown in

(b) 22 per cent of the principal shall be converted into equity and 10 per cent of the remaining principal shall be paid out of the proceeds of sale of the Masan site, and the remaining principal shall be paid in equal installments from the sixth (2006) year to the tenth (2010) year.

(C) The liquidation value of the security at issue exceeds the market value of the security for the security at issue (hereinafter “Redive Bank”) and the principal of the Cho Jae-Hy Bank (hereinafter “Redive Bank”) and the Korea Resources-Backed Limited Company (hereinafter “Redive Company”) shall be repaid in accordance with the original reorganization program.

(d)The deferred interest shall be converted into full, and the due interest shall be exempted in full;

(2) Method of change and repayment of reorganization claims in financial institutions

(A) 50 per cent of the principal shall be converted into equity, 6 per cent of the remainder of the principal shall be repaid with the proceeds of sale in the Msan site, and the remainder of the principal due shall be repaid on the annual due date of repayment from the 7th (2007) year to the 10th (2010) year.

(b)The deferred interest shall be converted into full, and the due interest shall be exempted in full;

(3) Sale of the site of marina factory and reimbursement of debts;

(A) The reorganization company must sell the Msan Factory site up to June 30, 2005.

(B) In the case of sale of the Masan Factory site, a security and reorganization claim shall be preferentially repaid in accordance with the reorganization plan of this case with the proceeds of sale of the Masan Factory site (150 billion won), and the remaining proceeds shall be used as the restructuring fund of the reorganization company.

(C) In the event that the sales proceeds of the Minsan Site are not raised only by the proceeds from the sale of the Minsan Site, the liquidation company shall raise the sales proceeds of the Minsan Site short of the proceeds from the third apartment project and the fourth apartment project. In the event that the Minsan Site sales proceeds of the Minsan Complex are not raised, the liquidation company shall raise the sales funds of the Minsan Site short of the proceeds from the third apartment project and the fourth apartment project.

(4) Sale of other proposals for security;

Where the reorganization company sells the articles other than the Masan Factory site, and redeems the security, the proceeds of sale for the articles concerned shall be repaid by the security holder concerned.

(d) A sale plan for the sites of marina factory (attached Table 8) and the actual sales result;

Under the revised plan of this case, the estimated sale time of the Msan Factory site was 2004, and the estimated sale price was 170 billion won. However, the actual Msan Factory site was sold at KRW 285 billion to the consortium Co., Ltd. on August 31, 2004.

E. Estimated distribution ratio between secured parties of the Msan Site according to the instant change plan

According to the revised plan, distribution of Masan capital among secured creditors is to be made in accordance with [Attachment Table 8] 10, 400, 200, 300, 300, 400, 50, 400, 80, 400, 50, 400, 50, 50, 500, 40, 50, 50, 50, 50, 50, 50, 50, 50, 50, 50, 40, 50, 50, 500, 50, 50, 50, 50, 50, 50, 50, 40, 50, 50, 50, 50, 50, 50, 80, 50, 80, 50, 40, 764, 57, 50,

2. Summary of grounds for appeal;

(4) The appellant may, in the case of the Masan Factory site, pay the total amount of principal in accordance with the original reorganization plan, on the ground that the liquidation value of the securities exceeds the market value of the securities held in the Masan Factory site. However, the liquidation value of the Masan Factory site should mean the estimated sale value immediately. Since the sale price calculated in the Masan Factory site plan exceeds 170 billion won, the total amount of the market value of the securities held in the Masan Factory site, including the appellant, or the total amount of principal, exceeds the market value of the Masan Factory site as well as the Masan Factory site security holders, and it is unreasonable for the appellant to treat the Masan Factory site more unfavorably than the total liquidation value of the securities held in the Masan Factory site without reasonable grounds. Thus, it is unreasonable for the appellant to view the Masan Factory site as a security right holder and the Masan Factory site in light of the purport of equity among the sale price of the Masan Factory site without reasonable grounds for the Masan Factory site.

3. Determination

A. Where it is necessary to modify matters determined in the plan due to unavoidable reasons after the decision to approve the reorganization plan is made, the court may modify the plan upon the application of the receiver, company or reported reorganization creditors, security holders, or stockholders (Article 270(1) of the Company Reorganization Act) only before the completion of the reorganization procedure (Article 270(1) of the Company Reorganization Act). In order to approve the amendment plan, the amendment plan must satisfy the fairness and fairness provided for in the former part of Article 233(1)2 of the Company Reorganization Act. Specifically, the fairness and fairness referred to in the amendment plan must be fairly and uniformly differentiated between different rights holders, taking into account the priority order of rights provided for in Article 228(1) of the same Act, and the conditions should be equal between different rights holders of the same kind as provided for in Article 229(1)5 of the same Act, and the equality in this case refers to the substantive equality that does not go against the concept of fairness and fairness, and thus, it shall not be divided into two different types or equality rights provided for in the same plan within two different types and different types of rights.

B. The instant change plan provides that the sales proceeds of the Msan Factory site shall be KRW 170 billion and, among them, KRW 150 billion shall be determined as the funds for sale of the Msan Site to be used in satisfaction of the reorganization securities and reorganization claims. In other words, from KRW 150 billion to KRW 150 billion, the total amount of KRW 1,242,00,000 out of the principal of other secured parties, excluding the secured parties, and the total amount of KRW 5,319,00,000 out of the principal of other secured parties, and the total amount of KRW 5,319,000,000,000 among the principal of the claim after a partial conversion of investment by reorganization creditors, shall be preferentially repaid, and only the remainder of KRW 14,681,00,000,000, including the principal of the claim of the secured parties, including the remainder of KRW 222,000,000.

However, the total amount of bond price for the Masan factory site is KRW 145,41,16,00 (=5,815,940,400 Korean bank + KRW 42,620,764 + 39,500 per annum 8,400,000 per annum 200,000 per annum 200,000,000 per annum 700,000 per annum 80,000,000 per annum 60,000,000 per annum 70,000,000 per annum 80,000,000 per annum 60,000,000 per annum 70,000,000 per annum 60,000,000 per annum 8,000,000,000 per annum 60,00,000 per annum 84,000,05,00

(c) Modification of the modification plan of this case through the establishment of protection clauses;

Therefore, the part of the amendment plan of this case, which allows the appellant to convert 22% of the principal security into investments, is clearly unfair. However, considering the fact that the majority of interested parties consented to the amendment plan of this case as well as the fact that the plan has already been implemented, and that the above amendment plan has not been influenced by social and economic aspects, the order of the court below should be modified by applying Article 234(1) of the Company Reorganization Act mutatis mutandis to the amendment plan of this case and prescribing a provision that protects the appellant's rights, thereby authorizing the amendment plan.

Furthermore, with regard to the provision on the protection of rights, when considering the health team, the progress from the approval decision of the modification plan of this case, the relationship with other interested parties as shown in the records of this case, the possibility of implementation of the original reorganization plan and the modification plan of this case, etc., the claim for the protection of rights against the appellant is reasonable in accordance with the attached Form (the appeal date of this case should be paid not only the principal of the security but also interest as well as the principal and interest of the company. However, in light of the fact that the purpose of the corporate reorganization plan of this case is to ensure the reorganization and reorganization of the company, the deferred interest on all creditors' claims, including the appellant, shall be converted into total amount, and the occurrence of the objection shall be exempted in full, the above claim is against the purpose of the corporate reorganization system or the equity with other creditors,

D. Whether the application for intervention is lawful

In order to intervene in a specific litigation case in order to assist one of the parties, there must be an interest in the result of the litigation concerned, and the term "interest" refers to a legal interest, not a economic or emotional interest, but a legal interest. In this case, for which the appellant who is a security holder filed an appeal on the ground that the modified plan of this case was unfairly infringed on the security of the Masan Factory site, it is difficult to see that the Intervenor who is a minor shareholder has a legal interest in the outcome of this case. Thus, all of the applications for intervention is unlawful.

4. Conclusion

Therefore, since the appellant's appeal is well-grounded, the order of the court below is modified as it approves the modification plan of this case by setting forth the attached data protection clause for the appellant, and the motion for intervention of the Intervenor is unlawful, and it is so decided as per Disposition by the assent of all.

[Attachment Supplementary Intervenor]

Judges Park Jong-dae (Presiding Judge)