[1] Whether a causal relationship is acknowledged between an act of an executive officer or employee of an enterprise to participate in large-scale window dressing accounting and an act of providing loans to a financial institution by means of debt guarantee, etc. (affirmative)

[2] In a case where an enterprise in an inevitable circumstance of bankruptcy was granted a loan or a guarantee of payment by a financial institution through a window dressing account, whether the causal link between the window dressing account of the enterprise and the loan or guarantee of payment by the financial institution is denied solely on the ground that the loan or guarantee of payment was provided sufficiently (negative)

[3] In a case where a financial institution which paid a payment on the old company bonds guarantees new company bonds issued by an enterprise for the purpose of raising the repayment fund, and the old company bonds debt is extinguished with funds raised by the above issuance, whether such financial institution may be deemed to have incurred a new loss (negative)

[1] Corporate financial statements and audit reports stating the audit results by an external auditor are the most objective data revealing the company's accurate financial status through the Korea Stock Exchange, etc., and they are important grounds for evaluating the credit rating of corporate bonds or commercial papers issued by the company and determining whether to provide loans to the financial institution. Therefore, in a case where an executive officer or employee of a company, etc. participated in large-scale window dressing accounting or an auditor of a company failed or neglected to perform important audit procedures related to the audit of financial statements in a large scale, it is reasonable to deem that the company's corporate bonds, etc. issued by the company obtained adequate credit rating from the credit rating institution and accordingly, the financial institution provided loans by guaranteeing or purchasing the company's corporate bonds, etc.

[2] In a case where a company obtains a loan or a payment guarantee from a financial institution, etc. that trusted financial statements, even if the financial statements were not disclosed in the financial statements, unless the company is in excess of its debt or cash liquidity shortage, and the company has been subject to a loan or a payment guarantee from the financial institution, etc. that trusted financial statements, the financial institution is generally prohibited from debt collection and security rights execution and at the time of the commencement of the company reorganization procedure under the former Company Reorganization Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428, Mar. 31, 2005), and it is difficult to view that if the financial institution was aware of large-scale window dressing accounting, it would have obtained a loan or a payment guarantee even if it would have been at risk of receiving such disadvantage if it had known of large-scale window dressing accounting, it cannot be deemed that there is no causal relationship between the company's window dressing financial institution's loan or payment guarantee in an inevitable situation solely on the ground that a sufficient collateral was provided.

[3] Property damage caused by an illegal act is a disadvantage in property caused by an illegal act, i.e., the property condition that existed without the illegal act, and the current property status difference caused by such an illegal act. If an enterprise which is not able to repay the old company bonds issued in its financial difficulties itself at the time of issuing new company bonds of the same scale in order to raise the repayment fund, a financial institution which has guaranteed the old company bonds again pays the new company bonds at the time of issuing new company bonds of the same scale, and the old company bonds are extinguished due to funds raised by the issuance of new company bonds, the financial institution was placed in the situation where it is necessary to realize the payment guarantee liability for the old company bonds due to the lack of the company's ability to repay the old company bonds and to actually perform the payment obligation on behalf of the new company bonds, and thus, it cannot be deemed that the financial institution bears the payment guarantee obligation on the old company bonds with the repayment fund established by the issuance of new company bonds, and even if the new company bonds are not legally identical with the payment guarantee obligation on the old company bonds, it cannot be deemed that the new company has paid new company bonds within the extent of payment guarantee.

[1] Articles 401(1), 414(2) and (3) of the Commercial Act / [2] Articles 401(1), 414(2) and (3) of the Commercial Act, Article 67 of the former Company Reorganization Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act (Act No. 7428 of March 31, 2005), Article 242 (see Article 252 of the current Debtor Rehabilitation and Bankruptcy Act) / [3] Articles 393, 750, and 763 of the Civil Act

[1] Supreme Court Decision 2005Da28082 decided Jan. 11, 2007 (Gong2007Sang, 270)

Seoul Guarantee Insurance Co., Ltd. (Law Firm Democratic, Attorneys Yoon Jin-young et al., Counsel for the defendant-appellant)

Defendant 1 and 5 others (Law Firm Hank, Attorneys Shin Sang-hoon et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2005Na106687 decided June 20, 2006

All appeals are dismissed. The costs of appeal are assessed against the Plaintiff.

The grounds of appeal are examined.

1. As to the causal relationship between the act of participation in window dressing accounting and the payment guarantee of the plaintiff's corporate bonds

The financial statements of an enterprise and audit report stating the result of the audit by an external auditor are the most objective data revealing the accurate financial status of the enterprise in question through the Korea Stock Exchange, etc., and it is an important basis for evaluating the credit rating of corporate bonds and corporate bills (hereinafter “corporate bonds, etc.”) issued by the enterprise and determining whether to provide credit to the financial institution. Therefore, in a case where an employee, etc. of an enterprise takes part in large-scale window dressing accounting or the auditor of an enterprise fails or neglects to perform an important audit procedure concerning the audit of the financial statements that are divided into a large scale, it is reasonable to deem that the company’s corporate bonds, etc. issued by the enterprise obtained a reasonable credit rating from the credit rating institution and accordingly, the financial institution provides credit by guaranteeing or purchasing the corporate bonds, etc. (see Supreme Court Decision 2005Da28082, Jan. 11, 2007).

On the other hand, in cases where a company has been granted a loan or a guarantee of payment by a financial institution, etc. which trusted financial statements without disclosing the financial statements despite the unavoidable circumstances, unless the company has been in excess of its liabilities or a cash liquidity shortage, and the company has been given a loan or a guarantee of payment by the financial institution, etc., even if such circumstance was not revealed in the financial statements, if the company has commenced a company reorganization procedure under the former Company Reorganization Act (repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act, Act No. 7428, Mar. 31, 2005), the financial institution is generally prohibited from both debt collection and security right execution, and it is difficult to view that if the financial institution knew of large-scale window dressing accounting, it would have been given a loan or a guarantee of payment even if it would have been at risk of being given a loan or a guarantee of payment by the company's window dressing financial institution in an inevitable situation, based on the sufficient collateral provision, it cannot be deemed that there is any causal relationship between the company's window dressing financial institution's loan and guarantee.

According to the reasoning of the judgment below and the records, Nasan Co., Ltd. (hereinafter "Nasan") had a high risk of default on payment for 1. 7 billion won per annum for each affiliate company of Nasan Group 1. 7 billion won, Nasan Co., Ltd. (hereinafter "Nasan"), 1997 and 1. 8 billion won per annum due to the serious aggravation of financial situation, such as default on cash liquidity of Baol Group 1 and 1997, and take measures to lend funds to an affiliate company with insufficient funds. Defendant 1 et al. settlement of accounts for the 1996 fiscal year around January 197, 197, Nasan Co., Ltd., Ltd. (hereinafter "Nasan") with 97 billion won per annum 19. 9 billion won per annum and 97 billion won per annum 19. 9 billion won per annum 97 billion won per annum 9 billion won per annum 19. The plaintiff's financial statements were 9 billion won per 9.

In light of the above legal principles and the above facts, the plaintiff's act of taking part in the accounting of Nasan and the plaintiff's payment guarantee of this case should be seen as having causation between the act of taking part in the accounting of Nasan and the plaintiff's act of taking part in the payment guarantee of this case since, under the circumstance that the financial statements of Nasan in large scale are not long due to the lack of cash liquidity and the company's failure to properly grasp or anticipate the fact that the company reorganization will commence due to the bankruptcy.

Nevertheless, the court below erred in holding that the causation between Defendant 1, etc. and the Plaintiff’s act of taking part in the window dressing accounting and the instant payment guarantee cannot be acknowledged on the ground that it is difficult to view that the trust in the financial statements of the corporation was formed in the market in light of the window dressing settlement practices at the time of the instant payment guarantee, and that the major accounting information users had been aware that the financial status of Nasan was unstable in early 1997. After reviewing the financial statements for the fiscal year 1996, the Plaintiff did not notify the Nasan of the Nasan and provided sufficient collateral from Nasan, and Defendant 1, etc. provided the instant payment guarantee. However, the court below’s rejection of the Plaintiff’s claim for damages, as seen in paragraph 2 below, did not affect the conclusion of the judgment, and it did not err in the misapprehension of judgment

2. Whether the payment guarantee of this case may cause a new loss to the Plaintiff due to the tort is against property disadvantage caused by the illegal harmful act, i.e., the property condition that existed without the illegal act, and the current property status difference caused by the illegal act. If an enterprise, due to financial difficulties, could not repay the old corporate bonds issued in the past with its own funds, issues new corporate bonds of the same scale to raise the repayment fund, a financial institution which provided payment guarantee of the old corporate bonds once it issues new corporate bonds of the same scale, and the old corporate bonds are extinguished with funds raised by the issuance of new corporate bonds, the financial institution was placed in the situation where it should actually perform the payment guarantee obligation of the old corporate bonds due to the lack of the company's ability to repay the old corporate bonds, and the financial institution shall be deemed to bear the payment guarantee obligation of the old corporate bonds with the payment guarantee obligation of the new corporate bonds in lieu of the new corporate bonds, unless the new corporate bonds were repaid within the same amount as the new corporate bonds were repaid within the extent of the new payment guarantee obligation.

In the same purport, the court below rejected the plaintiff's claim for damages of this case on the ground that, around August 23, 1994, China, which was the 38th payment guarantee of this case, was affected by financial difficulties due to cash liquidity, etc., was issued in order to repay the bonds of the same size 21 times of the same amount which was issued under the plaintiff's payment guarantee, and there is no violation of law by misunderstanding the legal principles as to the responsibility and causation of directors and auditors under the Commercial Act, as otherwise alleged in the ground of appeal.

3. As to the remaining grounds of appeal

As seen in the above Paragraph 2, the court below rejected the plaintiff's claim for damages of this case, on the ground that the court below omitted the judgment on the claim for damages based on the tort against the defendant 1, assessed the value of collateral provided by Nasan to the plaintiff, and judged that Nasan caused damages to the plaintiff, thereby misunderstanding the legal principles as to the causation, failing to exhaust all necessary deliberations, and violating the rules of evidence, merely because the court below erred by misapprehending the legal principles as to the causation and violating the rules of evidence, which cannot affect the conclusion of the judgment

4. Conclusion

Therefore, all appeals are 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 on the bench.

Justices Jeon Soo-ahn (Presiding Justice)