[1] The legal nature of a decision to transfer contracts made by the Financial Supervisory Commission pursuant to Article 14 (2) of the former Structural Improvement Act

[2] The meaning of "transfer of business" under Article 374 (1) 1 of the Commercial Code which requires a special resolution of the general meeting of shareholders

[3] Whether the Financial Supervisory Commission requires a special resolution at the general meeting of stockholders of the relevant insolvent financial institution in setting a decision to transfer a contract to the insolvent financial institution pursuant to Article 14 (2) of the former Structural Improvement of the Financial Industry Act

[4] Whether a decision to transfer contracts by the Financial Supervisory Commission, which was made at the request of the Financial Supervisory Commission pursuant to Article 14(2) and (3) of the former Act on the Structural Improvement of the Financial Industry, is unlawful solely on the ground that there was a procedural error in the procedure that did not go through the hearing procedure under Article 14-2 of the same Act (negative)

[1] The decision for contract transfer made by the Financial Supervisory Commission to an insolvent financial institution under Article 14 (2) of the former Act on the Structural Improvement of the Financial Industry (amended by Act No. 5549 of Sep. 14, 1998) is one of the reorganization methods in which the insolvent financial institution transfers assets and liabilities to a third party, and pays the difference between the transferred liabilities and the value of assets to the underwriting financial institution, and its nature is an administrative disposition which causes legal effects of the transfer of contractual status under the private law where the contractual status is transferred by a unilateral decision of the Financial Supervisory Commission.

[2] The transfer of business which requires a special resolution of the general meeting of shareholders pursuant to Article 374 (1) 1 of the Commercial Act refers to the transfer of all or part of the property organized for a specific business purpose and function as an organic whole by a claim contract with the other party under private law to the company as a whole, while maintaining its identity.

[3] The transfer of contracts under the Financial Supervisory Commission's decision to transfer contracts pursuant to Article 14 (2) of the former Act on the Structural Improvement of the Financial Industry (amended by Act No. 5549 of Sep. 14, 1998) and the transfer of business under the Commercial Act differs in its purpose, legal nature and effect, so the Financial Supervisory Commission cannot be deemed as requiring a special resolution of the general meeting of stockholders of the insolvent financial institution in making a decision to transfer contracts to the insolvent financial institution pursuant to Article 14

[4] The decision to transfer contracts and the cancellation of authorization and permission on banking business, etc. by the Financial Supervisory Commission shall be deemed to constitute a separate administrative disposition, depending on different subjects, contents, procedures, etc. subject to such disposition, and thus, even if there were procedural errors in the revocation of authorization and permission on banking business, etc. by the Minister of Finance and Economy upon the request of the Financial Supervisory Commission, which were made pursuant to Article 14-2 of the former Act on the Structural Improvement of the Financial Industry (amended by Act No. 5549 of Sep. 14, 1998), the decision to transfer contracts by

[1] Article 14 (2) of the former Act on the Structural Improvement of the Financial Industry (amended by Act No. 5549 of September 14, 1998), Article 5-4 of the former Enforcement Decree of the Act on the Structural Improvement of the Financial Industry / [2] Articles 374 (1) 1 and 434 of the Commercial Act / [3] Article 14 (2) of the former Act on the Structural Improvement of the Financial Industry (amended by Act No. 5549 of September 14, 1998), Article 5-4 of the former Enforcement Decree of the Act on the Structural Improvement of the Financial Industry (amended by Presidential Decree No. 15894 of September 22, 1998), Article 374 (1) 1 of the Commercial Act / [4] Articles 14 (2) and 14-2 (3) of the former Act on the Structural Improvement of the Financial Industry (amended by Act No. 5549 of September 14, 1998)

[2] Supreme Court Decision 94Da39253 delivered on October 28, 1994 (Gong1994Ha, 3124), Supreme Court Decision 96Da54249, 54256 delivered on April 8, 1997 (Gong197Sang, 1391), Supreme Court Decision 95Da6885 delivered on March 24, 1998 (Gong198Sang, 1127)

Plaintiff 1 and five others (Attorney Lee Yong-hoon, Counsel for the plaintiff-appellant)

Republic of Korea (Attorney Lee Dong-ju, Counsel for defendant-appellant)

Daejeon High Court Decision 99Na5123 delivered on May 24, 2001

Each appeal is dismissed. The costs of appeal are assessed against the plaintiffs.

1. As to the first proposal

Article 1 of the former Act on the Structural Improvement of the Financial Industry (amended by Act No. 549 of September 14, 198; hereinafter referred to as the "former Act on the Structural Improvement of the Financial Industry") shall provide for the purposes of this Act and Article 1 of the same Act to contribute to the balanced development of the financial industry by facilitating sound competition between financial institutions by supporting the structural improvement of the financial industry, such as merger, conversion or reorganization, and by enhancing the efficiency of financial business. Article 2 subparagraph 3 of the Act provides that financial institutions which are designated by the Financial Supervisory Commission, etc. as having difficulty in paying deposits or borrowing loans from outside of their financial institutions shall be insolvent financial institutions for more than 14 days, and Article 10 (1) of the Act provides that "the Governor of the Financial Supervisory Commission may, if it deems that their financial status is unsound due to the ratio of their own capital stock to such insolvent financial institutions, issue an order to the insolvent financial institution for suspension of its entire or partial transfer of contracts, and the Financial Supervisory Commission may, for a certain period of time, issue an order to the Financial Supervisory Commission to invalidate.

In light of the legislative intent of the above provisions of the former Act on the Structural Improvement of the Financial Industry and the same Act and the facts duly admitted by the court below, a decision on contract transfer made by the Financial Supervisory Commission to Chungcheong Bank pursuant to Article 14(2) of the former Act on the Structural Improvement of the Financial Industry is made as one of the reorganization methods of insolvent financial institutions in which a third party takes over and takes over specific portions of the assets and liabilities of an insolvent financial institution in the form of transferring contractual status arising from financial transactions, and payment of the difference between the transferred liabilities and assets to acquiring financial institutions, and its nature constitutes an administrative disposition in which the legal effect of the transfer of contractual status in a financial transaction by a unilateral decision of the Financial

On the other hand, a transfer of business which requires a special resolution of the general meeting of shareholders pursuant to Article 374(1)1 of the Commercial Act refers to the transfer of all or part of the assets organized for a certain business purpose and function as an organic whole by a claim contract with the other party under private law by a corporation (see Supreme Court Decisions 94Da39253, Oct. 28, 1994; 95Da6885, Mar. 24, 1998).

Therefore, since the transfer of contracts and the transfer of business under the Commercial Act, which are made by the Financial Supervisory Commission according to a decision for transfer of contracts under Article 14 (2) of the former Act on the Structural Improvement of the Financial Industry, are different in its purpose, legal nature and effect, the Financial Supervisory Commission cannot be deemed to require a special resolution of the general meeting of shareholders of the relevant insolvent financial institution in making a decision for transfer of contracts to insolvent financial

Even if the Act on the Structural Improvement of the Financial Industry was amended by Act No. 5549 on September 14, 1998, Article 14(6) of the same Act provides that "no resolution of the board of directors or the general meeting of shareholders of an insolvent financial institution which transfers contracts under paragraph (2) shall be required, notwithstanding the provisions of relevant Acts and the articles of incorporation, with respect to the decision on the transfer of contracts under paragraph (2)," it is merely a confirmatory provision clearly declaring the legal doctrine that Article 374(1)1 of the Commercial Act does not apply to the decision on the transfer of contracts by the Financial Supervisory Commission, and as such, such provision was newly established after the Financial Supervisory Commission

The decision of the court below to the same purport is just, and there is no illegality in matters of law by misunderstanding the legal principles as to the method and procedure of the decision for contract transfer, or in violation of Article 126 of the Constitution and Article 374

All of the arguments in the grounds of appeal are rejected.

2. As to the second proposal

A. The court below rejected the plaintiffs' assertion on the ground that even if there is a defect in the procedure that the Minister of Finance and Economy revokes the authorization and permission of the banking business with respect to the Chungcheong Bank as alleged by the plaintiffs, even if there is a defect in the procedure that the Minister revokes the authorization and permission of the banking business with respect to the Chungcheong Bank, it cannot be deemed that the prior decision of the Financial Supervisory Commission was illegal as well as the prior decision of the contract transfer.

B. The plaintiffs asserts that since the decision on contract transfer and the cancellation of authorization and permission of the Minister of Finance and Economy in this case are either a disposition or a arbitrative relationship, if any defect is found in any one procedure, the other should be deemed unlawful.

However, Article 14 (2) of the former Act on the Structural Improvement of the Financial Industry provides that when an insolvent financial institution falls under any of the subparagraphs of Article 14 (2), the Financial Supervisory Commission may take necessary measures, such as transfer of contracts, and request the Minister of Finance and Economy to cancel the authorization, permission, etc. of business. Article 14 (3) of the same Act provides that the Minister of Finance and Economy, who receives a request from the Financial Supervisory Commission under paragraph (2), may cancel the authorization, permission, etc. of the insolvent financial institution. Article 14-2 of the same Act provides that where the Minister of Finance and Economy intends to cancel the authorization, permission, etc. of the insolvent financial institution pursuant to Article 14 (3), he shall hold a hearing. Thus, the decision for transfer of contracts and the cancellation of authorization, permission, etc. of banking business, etc. by the Financial Supervisory Commission shall be a separate administrative disposition different from the subject, contents, and procedures of each disposition. Thus, even if there were errors in the procedure, such as the plaintiffs' assertion

Therefore, the judgment of the court below is just, and there is no error in the misapprehension of legal principles under Article 14-2 of the former Act on the Structural Improvement of Financial Industry

C. The plaintiffs also asserted that the judgment of the court below, which did not determine otherwise, is unlawful, inasmuch as the revocation of authorization and permission on banking business, etc. by the Minister of Finance and Economy is unlawful since it did not undergo the hearing procedure, the defendant is liable for damages arising from such unlawful act.

However, according to the records, the plaintiffs claimed damages against the defendant on the ground that they committed an intentional or negligent act committed by the Financial Supervisory Commission or public officials belonging to the Committee in the instant decision on contract transfer against the Chungcheong Bank, and they did not claim damages against the defendant on the ground that the Minister of Finance and Economy did not go through the hearing procedure to cancel the authorization and permission of banking business, etc. against the Chungcheong Bank. Therefore, even if the court below did not decide on the point of the plaintiffs, it did not err by failing to exhaust all necessary deliberations or omitting judgment, or by misapprehending the legal principles as to Article 14-2 of the former Act on the Structural Improvement of the Financial Industry.

The grounds of appeal cannot be accepted.

3. As to the third proposal

Although one bank, which is an underwriting bank, did not bear the obligation of employment succession, the defendant promised to leave five banks, such as Chungcheong banks, into insolvent financial institutions, and thereby, the defendant should compensate the plaintiffs for damages corresponding thereto. However, the court below rejected the plaintiffs' assertion on the ground that it is not recognized that the defendant did not agree on employment succession as alleged by the plaintiffs.

Compared with the evidence of the record, the court below is just in holding that the defendant had to leave the insolvent financial institution and had not promised to succeed to employment of the officers and employees of the withdrawing bank, and there is no error of law by misunderstanding facts against the rules of evidence or by misapprehending the legal principles on the guarantee of succession to employment.

The Supreme Court Decision pointing this out is not appropriate to be invoked in this case because the case is different in the grounds of appeal.

We cannot accept these arguments in the grounds of appeal.

4. As to the fourth proposal

The court below, citing the reasons of the judgment of the court of first instance, based on the fact that the Governor of the Financial Supervisory Service ordered 12 banks to submit management normalization plans to the Financial Supervisory Commission, and the Financial Supervisory Commission had the management normalization evaluation committee examine the banks' management normalization plans; whether the part which is objectively feasible in each bank's management normalization plan can be met by 8% as of June 200 when the part of the management normalization plan is implemented; and where the necessary additional capital is beyond the reasonable expected range, the court below determined that, as a result of the determination of the evaluation criteria to not approve the management normalization plan of the bank; the Financial Supervisory Commission reported it to the Financial Supervisory Commission; the Financial Supervisory Commission determined that the bank's failure to approve the management normalization plan was significantly below the ratio of BS to five banks including the Chungcheong bank, or was unlikely to meet the ratio of BS to its total assets in the future; and that there was no risk that the bank's failure to implement its management normalization plan was significantly below the ratio of 50 billion won in credit order as of March 1, 1998.

Compared with the evidence in the records, the fact finding by the court below is just, and there is no error in the misapprehension of law by failing to exhaust all necessary deliberations or by violating the rules of evidence.

We cannot accept these arguments in the grounds of appeal.

5. Conclusion

Therefore, each appeal shall be dismissed, and all costs of appeal shall be assessed against the plaintiffs. It is so decided as per Disposition by the assent of all Justices who reviewed the appeal.

Justices Shin Shin-chul (Presiding Justice)