[1] The meaning of "payment suspension" under Article 64 subparagraph 5 of the former Bankruptcy Act

[2] Where a decision of approval of composition under the former Composition Act becomes final and conclusive, whether the suspension of payment at the time of application for commencement of composition or other equivalent crisis has been resolved (affirmative)

[3] In a case where a composition is revoked due to a new circumstance after the decision to authorize composition becomes final and conclusive and a declaration of bankruptcy is issued, whether the prior suspension of payment, which caused the commencement of composition, or other critical situation corresponding thereto, can be deemed as a “suspension of payment” under Article 64 subparag. 5 of the former Bankruptcy Act (negative in principle)

[1] "Suspension of payment" under Article 64 subparagraph 5 of the former Bankruptcy Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005) refers to the case where the debtor explicitly and explicitly expresses his/her external expression that the debtor is unable to repay his/her debt at maturity generally and continuously due to lack of his/her own ability, and the lack of self-sufficiency refers to the case where the debtor is not able to repay his/her debt without any asset that is able to repay his/her debt and there is no credit rating that is sufficient to be postponed or repaid.

[2] When a decision of approval of composition becomes final and conclusive under the former Composition Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005), the composition procedure is terminated once the decision of approval of composition becomes final and conclusive, and the legal effect of all composition claims has the same effect as a contract entered into between composition creditors, composition debtor and composition participant with respect to all composition claims, and all composition claims have the same legal effect as a composition condition entered into between composition creditors, composition debtor and composition participant. Thus, the payment suspension condition or other equivalent crisis situation at the time of application for commencement of composition of composition of composition debtor is deemed to have been resolved by the final and conclusive

[3] In light of the purport and contents of Article 64 subparagraph 5 of the former Bankruptcy Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005) and Articles 9 (1) and 10 (1) of the former Composition Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005), where the composition is revoked due to a new circumstance or crisis situation after the decision of approval of composition becomes final and conclusive and a declaration of bankruptcy is issued, the "suspension of payment" under Article 64 subparagraph 5 of the former Bankruptcy Act shall be interpreted to be limited to the situation of payment suspension within the scope of proximate causal relation with the bankruptcy procedure or a critical situation equivalent thereto, and otherwise, deeming the situation of payment suspension within the scope of the previous composition procedure to be an unstable situation without considering the existence of the right to set aside or the progress of the former 4 years prior to the commencement or the progress of the composition.

[1] Article 64 subparagraph 5 of the former Bankruptcy Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005) (see Article 391 subparagraph 4 of the current Debtor Rehabilitation and Bankruptcy Act) / [2] Article 61 of the former Composition Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005), Article 298 (Elimination by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005) / [3] Article 64 subparagraph 5 of the former Composition Act (repealed by Article 2 of Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428 of March 31, 2005), Article 39 subparagraph 1 of the current Composition Act (see Article 391 subparagraph 4 of the current Composition and Bankruptcy Act), Article 298 subparagraph 4 (2 of the former Composition Act)

[1] Supreme Court Decision 200Da63554 delivered on June 29, 2001 (Gong2001Ha, 1727) / [2] Supreme Court Decision 98Da5964 delivered on March 26, 199 (Gong199Sang, 778) Supreme Court Decision 2003Da16641 Delivered on April 16, 2004 (Gong2004Sang, 798)

Plaintiff in bankruptcy of comprehensive distribution of the bankrupt career corporation

Korea Asset Management Corporation (Law Firm Yangyang, Attorneys Kim Mine-hun et al., Counsel for the plaintiff-appellant)

APS Specialized in the Securitization (Law Firm Squa, Attorneys Kim Ho-soo et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2006Na6425 decided Nov. 2, 2006

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

We examine the grounds of appeal.

"Suspension of payment", which is the basis for determining the starting requirements for gratuitous act subject to the exercise of the avoidance power under Article 64 subparagraph 5 of the former Bankruptcy Act (amended by Act No. 7428 of March 31, 2005, hereinafter referred to as the "Bankruptcy Act"), refers to the act explicitly and implicitly expressing to the outside that the debtor is unable to repay his/her obligations due to lack of his/her own ability. The lack of self-sufficiency refers not to a simple excess of his/her obligation, but to a situation where the debtor is not able to repay his/her obligations, but to the extent that he/she is not able to obtain credit rating for being deferred or sufficient to repay his/her obligations.

In addition, Article 10 (1) of the former Composition Act (amended by Act No. 7428 of Mar. 31, 2005; hereinafter "Composition Act") provides that the composition procedure commenced upon the application for the commencement of composition by a composition debtor in the absence of a suspension of payment, but the court made ex officio a declaration of bankruptcy against a composition debtor pursuant to Article 9 (1) of the Composition Act when the court made ex officio a declaration of bankruptcy pursuant to Article 9 (1) of the Composition Act (including Article 64 subparagraph 5 of the above Bankruptcy Act), the application for the commencement of composition, the cancellation of composition or the cancellation of composition, or the cancellation of composition, shall be deemed to be the "suspension of payment" in the application of Part I (including Article 64 subparagraph 5 of the above Bankruptcy Act) of the Bankruptcy Act.

On the other hand, when a decision of approval of composition becomes final and conclusive, the composition procedure is terminated and the legal effect of the contract between composition creditors, composition debtors and composition intervenors is identical to the contract between composition creditors, composition debtors and composition intervenors on all composition claims, and all composition claims are generally and abstractly changed as prescribed by composition conditions. Thus, the payment suspension condition at the time of application for commencement of composition of composition or other equivalent crisis situation at the time of application for commencement of composition of composition can be deemed to have been terminated as the decision of approval of composition becomes final and conclusive.

Therefore, in light of the purport and contents of Article 64 subparag. 5 of the Bankruptcy Act and Articles 9(1) and 10(1) of the Composition Act, in a case where the composition is canceled due to a new circumstance or a critical situation during which the repayment, etc. has been made under the conditions of composition after the decision of approval of composition was finalized, and a declaration of bankruptcy has been rendered, the “payment suspension” under Article 64 subparag. 5 of the Bankruptcy Act shall be interpreted to be limited to the suspension of payment within the scope of proximate causal relation or a critical situation equivalent thereto, i.e., the suspension of payment within the scope of proximate causal relation. In other words, without considering the termination of the previous composition procedure or the progress or progress thereof, deeming the previous suspension of payment or a critical situation corresponding thereto as “payment suspension” under Article 64 subparag. 5 of the Bankruptcy Act, without any restriction, by excessively expanding the creditor’s status by exercising the right to set aside, thereby undermining the security of transaction.

The court below acknowledged the following facts based on its adopted evidence: (a) critical situation corresponding to the suspension of payment due to rapid aggravation of the financial resources of comprehensive distribution in the course at the time of applying for the commencement of composition with respect to comprehensive distribution in the course of the bankrupt company (hereinafter “comprehensive distribution”), which is equivalent to the suspension of payment due to rapid aggravation of the financial resources of comprehensive distribution in the course at the time of applying for the commencement of composition with respect to comprehensive distribution in the course of the bankrupt company, was resolved accordingly according to the determination of the composition approval; and (b) thereafter, the comprehensive distribution in the course has continuously expressed the intention to repay the composition debt that has been changed for about five years; and (c) the crisis situation corresponding to the suspension of payment, which is the cause of the commencement of the above commencement of composition, which is equivalent to the suspension of payment, can not be deemed directly related to the bankruptcy declaration of this case which was made five years after the commencement of composition, and determined that the bankruptcy decision of Article 68(2) of the Bankruptcy Act should not be deemed as the "suspension of payment suspension" under Article 54 of composition conditions ex officio or ex officio.

Examining the reasoning of the judgment below in light of the above legal principles and records, the fact-finding and judgment of the court below are just and acceptable, and there are no errors in the misapprehension of legal principles as to the suspension of payment under Article 64 subparagraph 5 of the Bankruptcy Act, as otherwise alleged in the ground of appeal.

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing plaintiff. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Nung-hwan (Presiding Justice)