The case holding that the creditor financial institutions council requests ex officio a judgment on the unconstitutionality of the provisions of Articles 17 (1) and 27 (1) and (2) of the former Corporate Restructuring Promotion Act that, if it has passed a resolution on the adjustment of claims or new credit extension with the consent of a majority creditor financial institution holding not less than 3/4 of the total amount of credit extension by creditor financial institutions, the creditor financial institutions opposing the resolution shall not exercise the right to demand a purchase of claims,

The former Corporate Restructuring Promotion Act (amended by Act No. 6891 of May 29, 2003) (amended by Act No. 6891 of May 29, 2003) requests ex officio adjudication on the unconstitutionality of a law on the grounds that it is against the democratic basic order adopted by the Constitution as a result of the uniform regulation of the acts of creditor financial institutions belonging to the private autonomy area in the form of law, and it is contrary to the basic democratic order adopted by the Constitution, and in particular, if it makes a resolution on the reorganization of claims or new credit extension with the consent of a majority of creditor financial institutions holding not less than 3/4 of the total amount of credit extension of creditor financial institutions, and it is doubtful that the creditor financial institutions opposing the resolution are in violation of the right to demand claims and the obligation to repay claims, and the guarantee of private property rights, guarantee of judicial review and trial claims, prohibition of infringement of property rights by retroactive legislation, and protection of trust.

Articles 17(1) and 27(1) and (2) of the former Corporate Restructuring Promotion Act (Amended by Act No. 6891, May 29, 2003); Articles 11, 13(2), 23, 27, and 119(1) of the Constitution

Korea Exchange Bank (Law Firm, Kim & Lee, Attorneys Kang Yong-ok et al., Counsel for the defendant-appellant)

Kant Life Insurance Co., Ltd. and two others (Attorneys Choi Jong-soo et al., Counsel for the plaintiff-appellant)

Seoul Central District Court Decision 2003Gahap43808 Delivered on August 17, 2004

With respect to the above case, an adjudication on the unconstitutionality of Articles 17(1), 27(1), and 27(2) of the Corporate Restructuring Promotion Act shall be requested.

1. The provisions of the Act which are suspected of being unconstitutional;

(a) Article 17 (1) of the Corporate Restructuring Promotion Act: Creditor financial institutions may, if deemed necessary for the normalization of management of an enterprise showing signs of insolvency, readjust the claims or grant new credit extension (excluding an alteration of the terms and conditions of existing credit extension) to the relevant enterprise in accordance with a resolution of the council. In such cases, the readjustment of claims shall be conducted fairly and equally in consideration of the order of rights;

(b) Article 27 (1) of the same Act: A resolution by the council shall be made with the consent of the creditor financial institutions retaining 3/4 or more of the gross amount of credit extension by the creditor financial institutions (including the amount of credit converted into investments pursuant to the plans for management normalization: Provided, That the council may determine by its resolution the methods of resolution differently by setting forth the scope of specific cases;

(c) Paragraph (2) of the same Article: The creditor financial institutions shall faithfully perform the matters resolved under paragraph (1); and

2. Case summary

A. On April 20, 199, the non-party Hyundai Construction Co., Ltd. (hereinafter referred to as "Modern Construction") issued bonds with warrants equivalent to USD 50 million in total to pay 12.8% of the principal and principal at maturity (hereinafter referred to as "the bonds of this case") to the trustee company with the banks of the United Kingdom Lusscom Limited, the maturity of which is April 20, 2002, and the maturity of which is 12.8%. At maturity, the bonds with warrants equivalent to USD 50 million in total to pay 12.8% of the principal and principal at maturity (hereinafter referred to as "the bonds of this case") among the bonds of this case 1 bonds through foreign securities markets (hereinafter referred to as "the bonds of this case") were purchased 20 million U.S. fire bonds of this case, and the bonds of this case are 20 million U.S. dollars 300 million U.S. 5 million U.S. 200.

B. On July 2, 199, Hyundai Construction issued bonds with warrants equivalent to USD 100,000 in total to pay in lump sum the maturity guarantee return on July 2, 2002 through the above trustee company, 10.04% at maturity, 10.04% at maturity, and 10.04% at maturity of principal and principal (hereinafter “the bonds of this case”) through foreign securities markets (hereinafter “the bonds of this case”) and among the bonds of this case 2 bonds of this case, the bonds of USD 10,00 in the bonds of this case were purchased each of the bonds of USD 5,00,000 in the bonds of Defendant Il-il.

C. Meanwhile, upon the occurrence of liquidity problem in the modern construction, 35 creditor financial institutions, including the second financial right, decided to conduct corporate improvement work (work-out program) under the "Financial Institution Convention for the Promotion of Corporate Restructuring" (hereinafter referred to as the "Council") around November 200 in order to promote the modern construction, and hold a council of creditor financial institutions (hereinafter referred to as the "First Council") on March 29, 2001 and hold a council of creditor financial institutions to conduct corporate improvement work. In order to carry out corporate improvement work, the creditor financial institutions' first Council on March 29, 2001 (hereinafter referred to as the "Council") decided to convert some of the unsecured bonds held in the modern construction into equity investment and entrust some of it with the decision of the Steering Committee. Accordingly, on June 13 of the same year, the Steering Committee held on June 13, 2000 decided to convert into equity investment to the amount equivalent to 60.64% of secured bonds, including bonds held by creditor financial institutions in the present construction.

D. Since September 15 of the same year, when the Corporate Restructuring Promotion Act enacted by Act No. 6504 of Aug. 14, 2001 (hereinafter referred to as the "Regulatory Promotion Act") came into force on September 15 of the same year, the Plaintiff, a principal creditor bank of Hyundai Construction, convened a creditor financial institutions council under the Reconciliation Promotion Act (hereinafter referred to as the "Second Council") on November 28 of the same year, and re-contribute the claims of creditor financial institutions for Hyundai Construction based on Article 17 of the Re-contribute Act. On October 20 of the same year, the Plaintiff, a principal creditor bank of Hyundai Construction, converted its face value of at least 96.96% of the secured claims for Hyundai Construction into an unlimited common share of at least 5,00 won, but, on June 13, 2001, a resolution to re-contribute the amount of each of the instant bonds into 16% of the total amount of each of the instant bonds (hereinafter referred to as 10% of each of the instant bonds).

E. However, the Defendants were not present at each of the above councils without reporting to the 1st and the 2nd Council with respect to the claims for modern construction arising from the instant bonds Nos. 1 and 2 (However, Defendant Teaching Life was present at the 1 and the 2nd Council, but did not exercise voting rights).

F. Accordingly, the Plaintiff asserted that, as a creditor financial institution falling under Article 2 subparagraph 1 (g) of the Promotion Act, the Defendants are obligated to convert 96% of each of the instant bonds into stocks of Hyundai Construction pursuant to the instant debt-to-equity swap resolution adopted pursuant to Articles 17 and 27 (1) of the said Act, and filed the instant lawsuit seeking implementation of the debt-to-equity swap procedure against the Defendants.

3. Presumption of the judgment

Articles 17(1) and 27(1) and (2) of the Promotion Act (hereinafter “instant legal provisions”) are the legal provisions that the Plaintiff seeks implementation of the procedures following a debt-to-equity swap resolution against the Defendants in this case. If each of the above legal provisions becomes null and void as unconstitutional, the Defendants are not obliged to respond to a debt-to-equity swap resolution, and thus the Plaintiff’s claim seeking implementation is dismissed. Thus, each of the above legal provisions is the premise of the judgment in this case.

4. Grounds for suspecting the unconstitutionality of each of the legal provisions of this case

A. The purpose and background of the enactment of the Promotion Act

(1) The Promotion Act was enacted by Act No. 6504 on August 14, 2001 for the purpose of "for the purpose of enhancing corporate transparency and establishing a system for efficiently managing credit risks by financial institutions, while prescribing matters necessary for promoting corporate restructuring promptly and smoothly, thereby facilitating regular corporate restructuring through market functions (Article 1)" (Article 1).

(2) Before the introduction of the above Act, the company improvement program was promoted by a voluntary agreement between creditor financial institutions (hereinafter referred to as "financial creditors") through the "Financial Institution Convention for the Promotion of Corporate Restructuring" enacted in June 1998. However, as a result, it was difficult for some financial institutions to smoothly proceed with corporate restructuring due to the failure to reach an agreement at the time of the occurrence of differences between financial creditors, delay of agreement at the time of the occurrence of differences between financial creditors, and the failure to coordinate their interests, the government enacted the main contents of the above workout agreement, which was subject to autonomous agreement, as a promotion law, thereby giving legal enforcement. Note 1)

(3) The restructuring of insolvent companies originally is basically a private autonomy control area where interests between financial creditors and debtor companies or between financial creditors should be adjusted in accordance with the market economy principle, and property rights are likely to be infringed in the process. Therefore, in principle, it should be premised on the voluntary participation and consultation of interested parties and the guarantee of fair and legitimate procedures.

However, as seen below, the current Promotion Act has almost excluded the debtor's position and has enforced a procedure centered on financial creditors, and has uniformly regulated the actions of financial institutions belonging to the area of private autonomy in the form of a law. As a result, it is doubtful that the contents of the democratic basic order adopted by the Constitution include unconstitutional elements that do not comply with the principles, such as guaranteeing judicial remedies for infringement of property rights, guaranteeing substantial equality, guaranteeing private property rights, and excluding infringement of property rights by retroactive legislation.

(b) comprehensive review of the suitability of the Constitution of the Promotion Act;

(1) Regarding the principles of capitalistic market economy order and private autonomy

(A) Article 23(1) of the Constitution provides that “All citizens’ property rights shall be guaranteed,” and Article 119(1) of the Constitution provides that “The economic order of the Republic of Korea shall respect individuals and enterprises’ economic freedom and creative initiative,” thereby declaring that it is based on the principle of private property system and private autonomy concerning economic activities (see Constitutional Court Order 94HunBa19, 95HunBa34, 97HunBa11, August 21, 197). As such, under the market economy order that respects individuals and enterprises’ economic freedom and creative initiative, the State needs to regulate the economy to the extent that the private property system and the private autonomy principle, which serves as the basis of the capitalistic market order, are respected.”

(B) Therefore, even if there is a need to enhance transparency in corporate management and corporate competitiveness by promptly promoting restructuring of insolvent companies, the government should analyze the institutional problems in the workout system in force at the time so that interested parties participating in the procedures can be guaranteed the fair and fair and reasonable operation of due process. If the private autonomy between the parties is fundamentally damaged or the infringement of property rights is allowed in the name of majority, it would be inconsistent with the market economic basic order that is based on the principle of autonomous judgment and responsibility.

(C) In addition, fundamental rights, such as private autonomy, can be restricted only where there are explicit statutory provisions, and even where such statutory provisions exist, the essential contents of fundamental rights cannot be infringed (see Article 37(2) of the Constitution and Article 96Hun-Ba22, Aug. 27, 1998). In general, as the effect of restricting fundamental rights under the law is more severe than that of the law on the clarity of the law (see, e.g., Constitutional Court Order 2002Hun-Ba82, Jul. 24, 2003).

(D) However, the current Promotion Act, from the standpoint of the financial creditor, requires the financial creditor to join as a member of the Council in principle regardless of his/her individual intention (Article 24(1)), and (2) permits the infringement of property rights, such as re-resolution of claims by the resolution of the Council, against his/her own will, except for recognizing the right to demand a claim that cannot be viewed as a legitimate compensation (Article 24(1)); (3) regulates the financial creditor to prevent additional credit extension under his/her own risk until an agreement for the implementation of the management normalization plan is concluded (Article 15(3)).

Next, from the standpoint of the debtor company, the Promotion Act requires the relevant company to obtain the approval of the fund manager designated by the council on the execution of major business, such as fund management, and if the relevant company fails to comply with such request without justifiable grounds, or performs its business without the approval of the fund manager, the suspension of exercising the claim or the suspension of the joint management procedure (Article 13(1) and (3)). This, in fact, allows the council, which is merely a financial creditor group, to exercise the management right of the relevant company, to exercise the rights of shareholders under the Commercial Act and the freedom of corporate management activities (Article 13(1) and (3).

In terms of the operation of the system for corporate restructuring, the Promotion Act provides that financial creditors shall determine the risks of insolvency of the company in accordance with the standards set by the Financial Supervisory Commission and take certain measures according to the results of the determination (Articles 9(2) and 10(2)), and there is considerable doubt as to whether the progress of fair and neutral procedures is guaranteed in that it is institutionalized to promote corporate restructuring under the lead of the principal creditor bank designated by the Financial Supervisory Commission.

(E) In full view of the foregoing reasons, even if considering the urgency of public interest and corporate restructuring to be achieved by the Promotion Act, the current Promotion Act is suspected to have a unconstitutionality that is somewhat inconsistent with the capital market economy order of our Constitution based on private property and economic activities, freedom and creative initiative of individuals and enterprises.

(2) Regarding the guarantee of due process and judicial remedies

(A) Claims against an obligor company held as a result of the extension of credit by a financial creditor are in principle not to be arbitrarily changed the amount of principal and interest and the payment period, etc. without the consent of an individual financial institution as property rights of the financial institution. However, exceptionally, the Company Reorganization Act, the Composition Act and the Composition Act allow the same with the consent of multiple creditors without the consent of individual creditors.

(B) However, the Company Reorganization Act and the Composition Act allow the alteration of the conditions of repayment by the creditor’s resolution and the court’s approval decision only in cases where the conditions are met under the court’s strict judicial review with respect to an enterprise which is in excess of obligations or risks of bankruptcy, in particular, the interests of each creditor are not likely to be unduly infringed upon regardless of the changes in the conditions of payment, and where the interests of all creditors are likely to be infringed upon by the court’s decision if the debtor goes bankrupt, or the composition is objectively confirmed by the court as consistent with the general interests of creditors. As such, permitting the alteration of the conditions of repayment by the resolution of the creditors meeting which is not an individual consenting person under the Company Reorganization Act and the Composition Act is strictly in charge of each procedure, thereby guaranteeing the means of objection to the court’s decision.

On the other hand, the Promotion Act provides that the matters resolved by the Council, such as the change of the terms and conditions of a claim held by a financial creditor (the extension of the repayment deadline, reduction of principal and interest), conversion of investment into investments, and the scope of the burden of additional financial support, shall be fair and equitable, and it is possible to adjust claims based on the amount of credit held by a financial creditor only without any judicial review. Therefore, the situation that it is a unilateral sacrifice of a small amount of financial creditor due to the cross-breadth of a large amount of claims may occur.

(C) Furthermore, under the existing workout agreement that provides for debt settlement, etc. under which financial creditors are subject to the self-regulation of financial creditors, it is natural to assume restrictions accordingly. However, in cases where the exercise of property rights is restricted by legislation against the intent of the parties and the establishment of uniform processing standards necessary for the achievement of legislative purpose, the infringement of legal interests is minimized, substantial fairness of the outcome is guaranteed, and the rights and interests of interested parties can be protected within a fair and neutral procedure, and the rule of law can be granted only if judicial review or trial claims are substantially guaranteed for the relief of rights.

(D) However, the current Promotion Act is based on the basic structure of allowing the principal creditor bank, which is only one of the interested parties, to preside over the procedure and promote the restructuring centered on the financial creditors according to the criteria set by the Financial Supervisory Commission, not the market autonomy, and it has fundamental limitations on the progress of fair and neutral procedure and the coordination of interests. In addition, in the form of the provisions itself, the relevant debtor company, which is judged as an enterprise showing signs of insolvency with very unclear concept (Article 2 subparagraph 5), does not have any judicial remedy that the principal creditor bank or the council may object to the determination of the creditor bank or the council. (3) Even in the report of credit extension, if there is a dispute as to the existence of the credit extension amount reported by the financial creditors, the council, the principal creditor bank of direct interest, alone, is required to restrict the exercise of voting rights to the relevant financial creditors, and further, it is possible to ensure that the resolution of the council, which was made before the time it becomes possible to exercise voting rights, cannot be set up against the relevant financial creditors in terms of unlawful and unfair resolution.

(E) Comprehensively taking account of the above various reasons, the current Promotion Act is suspected to have inherent unconstitutionality that does not fit the basic principles of our Constitution in terms of guaranteeing due process and judicial remedies.

(3) As to the principle of equality and prohibition of arbitrary discrimination

(A) The Company Reorganization Act, which promotes the rehabilitation of insolvent companies, provides that all creditors shall be subject to the application of the procedure for reorganization of claims, while the Act provides that a foreign financial institution that does not have a branch, etc. in Korea (hereinafter referred to as an "overseas creditor") and a non-financial institution (hereinafter referred to as "general creditor") shall carry out reorganization of claims, etc. in the state of exclusion from the application without any particular reason.

As a result, the property rights of financial creditors are considerably infringed by allowing financial creditors to transfer to non-applicable persons under the Promotion Act the minimum amount of the financial creditors could have secured through dividends if the bankruptcy proceedings were conducted, as well as being unfairly discriminated against without reasonable grounds. The specific contents are as follows.

(B) The Company Reorganization Act and the Bankruptcy Act explicitly stipulate that overseas creditors have the same status as those of domestic financial creditors (Article 3 of the Company Reorganization Act, Article 2 of the Bankruptcy Act), but the Corporate Reorganization Act excludes the application to overseas creditors, thereby guaranteeing, while domestic financial creditors are subject to restrictions on the exercise of claims, the exercise of claims against overseas creditors against an enterprise showing signs of insolvency is not practically restricted. Such discrimination results in the exercise of unfair benefits to overseas creditors due to the sacrifice of domestic financial creditors without reasonable grounds.

In addition, unlike the Company Reorganization Act and the Bankruptcy Act, the Promotion Act excludes general creditors who are not financial institutions. Accordingly, as in the case of foreign creditors, general creditors are not subject to any restriction on the exercise of claims, and furthermore, if bankruptcy proceedings are initiated against the relevant company after the financial creditors lose their obligations under the Promotion Act, the financial creditors will inevitably suffer significant financial disadvantage compared to general creditors because the amount of claims reported in the bankruptcy proceedings is reduced.

(C) A preservative measure system prohibiting repayment under the Company Reorganization Act is not established. However, Article 14 of the Company Reorganization Act provides that where a principal creditor bank calls a meeting of the Council, the Governor of the Financial Supervisory Service shall notify the Financial Holding Service of such fact, and the Governor of the Financial Supervisory Service may request a financial creditor to postpone the exercise of a claim until the date when the first Council is convened from the date when the Council is notified to the financial creditor. However, the request for postponement is not legally binding, and as a result, if a financial creditor notified exercises a right, such as disregarding the request for postponement and offsetting his/her claim against the company showing signs of insolvency, only the creditor who has suspended the exercise of a claim upon the request for postponement will suffer a

(D) As above, the Promotion Act only imposes, among all credit granting institutions, the obligation to reorganize claims, such as change of the conditions of claims, conversion of investment, etc., on the resolution of the Council, on the condition that only a single domestic financial creditor is subject to the application of this Act, guarantees the exercise of claims under the sacrifice and burden of domestic financial creditors by excluding the application of this Act, and guarantees the exercise of claims by the overseas financial creditors and general creditors without any restriction on their sacrifice and burden, and as a result, forces only the financial creditors who refuse the request for the postponement of claims as a result of the lack of any sanctions against the financial creditors who refuse the request for the postponement of claims. In essence, it is difficult to doubt the unconstitutionality in light of the principle of equality under the Constitution that declared the prohibition of arbitrary discrimination, even in light of the public interest purpose of prompt restructuring.

C. Detailed review of each legal provision of this case

(1) As to the infringement of private property rights

(A) Article 23 of the Constitution provides that “All citizens’ property rights shall be guaranteed. The contents and limitations thereof shall be determined by Act. The profit, use or restriction of property rights due to public necessity and compensation therefor shall be governed by Act and shall be paid with due compensation.” It is natural that the above property rights include claims.

(B) However, according to Articles 17(2) and 17(2) of the Promotion Act, if the Council makes a resolution on the readjustment of claims or the new credit extension with the consent of financial creditors holding not less than 3/4 of the total amount of credit extension (in cases of the readjustment of claims, it is necessary to approve not less than 3/4 of the total amount of secured claims in addition to the above requirements). Any financial creditor opposing the resolution shall be deemed to have consented to the resolution of the Council unless it exercises the right to purchase claims under Article 29 of the Promotion Act, and shall be deemed to have the obligation to expropriate claims or provide new funds regardless of his/her will and ability.

At the time of the implementation of the previous Work Agreement, which is an autonomous agreement, the membership of financial creditors is left at their own choice, and it is possible for financial creditors who oppose the resolution of the Council to withdraw from the Council or refuse to implement the resolution of the Council, so there was no problem of infringement of property rights. However, the current Promotion Act explicitly compels the implementation of the resolution, and it seriously infringes on the property rights of private autonomy and opposing financial creditors, unless they recognize the right to claim a claim against opposing financial creditors, but do not dispose of their opposing claims by exercising their rights.

(C) Although the Promotion Act introduced a claim right to purchase in order to compensate for the infringement of property rights of financial creditors, there is still doubt that there is still a problem in the protection of rights of financial creditors because it is limited to the subject of exercise of the above right and compensation does not constitute legitimate compensation. In other words, Article 29(1) of the Promotion Act recognizes the claim right to purchase against financial creditors who oppose the resolution of the Council, but it is limited to those who did not attend the Council or attend the meeting and expressed their opposing intent in writing. Thus, in this case, as in the second meeting as Defendant Crown Life, if the second meeting is present but fails to exercise voting rights, it is not possible to exercise the claim right to purchase and to have additional financial creditors who did not report it within the reporting period of credit extension amount as stipulated in Article 28(1) of the Promotion Act, and if the financial creditors exercise their claim right to purchase, they cannot exercise the claim right to purchase within the period of implementation, which is highly likely to cause the financial creditors who did not report it to be redeemed by the Council or the Korea Asset Management Guarantee Corporation (the Korea Asset Management Corporation).

(D) In this respect, each of the instant legal provisions imposing obligations to repay debts or provide additional financial support to financial creditors who oppose the resolution by the Council alone cannot be suspected of unconstitutionality in that it infringes upon the right to private property without any justifiable compensation.

(2) Regarding judicial review and guarantee of the right to trial

(A) According to each of the legal provisions of this case, if there is only the consent of financial creditors holding not less than 3/4 of the total amount of credit extension (in the case of debt adjustment, consent of not less than 3/4 of the total amount of secured claims is required) and regardless of whether the debt adjustment or new credit provision is conducted, any other financial creditors may be allowed to unilaterally change or reduce the terms and conditions, or to bear the obligation to provide additional credit for claims owned by other financial creditors. This means a significant infringement on property rights from the standpoint of the opposing financial creditors.

(B) However, in the latter part of Article 17(1) of the Promotion Act, the said Act only provides a declared provision that "a claim readjustment shall be made in a fair and equitable manner, taking into account the order of rights," and does not take into account the procedural aspects, such as making a decision by dividing the same nature as that of the company reorganization procedure by creditors who have different characteristics, and allowing a principal creditor bank, which is only one of the interested parties, to preside over the procedure in accordance with the standards set by the Financial Supervisory Commission.

(C) In the event that the Council has made a resolution on debt readjustment, etc. to a certain debtor company pursuant to each of the instant legal provisions, if it intends not to unreasonably infringe on the rights of financial creditors belonging to the Council, it is necessary to file an objection to the selection of the target company, the details and degree of debt readjustment and new credit extension, and the compliance with due process of law, even without exercising the right to demand a claim.

However, according to Articles 31(4) and 32 of the Promotion Act, a financial creditor who has an objection to the matters to be deliberated by the Council may file an application for mediation with the Mediation Committee, but the Mediation Committee does not include any objection to the resolution of the Council which has a significant influence on the interests of opposing financial creditors, and thus, is unable to correct the result of arbitrary operation of procedures by financial creditors who hold a large amount of claims (Article 31(4) and Article 32 of the Promotion Act).

This is the case where the Company Reorganization Act, upon the application of the commencement of reorganization proceedings, where it is evident that the value at the time of liquidation of a company is greater than that at the time when the company continues to conduct its business through a strict examination of the cause for commencement (Article 38 subparagraph 4 of the same Act). The case is the case where the contents of the reorganization programs are fair, equitable, and implementable, and the case is consistent with the reorganization program which is adopted at the meeting of interested persons, so that the court can secure the substantial fairness of the reorganization program (Article 233 of the same Act), and further, the case is the case where the above court's immediate appeal (Articles 50 (1) and 237 (1) of the same Act) can be made.

(D) For the foregoing reasons, each of the instant legal provisions is doubtful of violation of the Constitution in terms of violation of due process and the right to trial, even if the public interest, which facilitate corporate restructuring, is sufficiently considered.

(3) Regarding the infringement of property rights and the principle of protection of trust by retroactive legislation

(A) The current Promotion Act, effective from September 15, 2001, applies, without limitation, to any claims established by credit extension prior to that. Accordingly, financial creditors are obliged to accept or provide additional financial support for claims already acquired prior to the enforcement of the Act only by a resolution of the Council.

This is obviously limited to the retroactive restriction of property rights based on the legal relations formed prior to the enforcement of the above Act, and there is room to view it as constituting infringement of property rights by retroactive legislation (Although there are cases of retroactive application at the time of the workout agreement, which is prior to the enforcement of the Promotion Act, the above Convention is recognized as Voluntary accession of financial creditors, and it is possible to withdraw and refuse to withdraw if it objects to the resolution of the Council, so it cannot be compared in the same line with the Promotion Act and the workout agreement.)

(B) In addition, it is very important to expect that a financial creditor can exercise a claim arising from the provision of credit in accordance with the substance of the claim is based on the business and existence of a financial creditor. On the contrary, even if the restructuring of a certain company is basically a matter of the company in question and the rehabilitation of a certain company in a insolvency crisis is somewhat helpful to enhance national competitiveness, it is difficult to view that the benefit should be protected even when it has sacrificed the trust of a financial creditor.

Nevertheless, the Promotion Act recognizes the application of financial creditors' claims that have been established and confirmed prior to the enforcement of the Act without limitation. Considering the public interest to be achieved through corporate restructuring, this would be an unfair infringement on the interests of financial creditors in light of the capitalistic market order, the principle of private autonomy, and the basic principle of guaranteeing property rights under our Constitution.

(C) On the other hand, Article 27(1) of each of the legal provisions of this case includes "the amount of debt converted into investment in accordance with the business normalization plan" in the total amount of credit extension by financial creditors in calculating the quorum of the Council.

In principle, when the implementation of a debt-to-equity swap is completed, a creditor shall lose his/her status as a creditor and only have his/her status as a shareholder, and he/she shall not exercise his/her rights as a creditor. This basic principle conforms to the principles of legal stability, predictability, and trust protection that applies to the procedures under the Promotion Act as in the

Therefore, if a financial institution has converted its claim to its shares under a private agreement before commencing the joint management proceeding of financial creditors under the Promotion Act, the financial institution should no longer exercise its rights or voting rights as a creditor even if the joint management proceeding commences with respect to the relevant company thereafter. Nevertheless, Article 27(1) of the Promotion Act provides that the amount of claims converted into investment under the management normalization program shall include the total amount of credit extension by the financial creditor and calculate the quorum for the resolution of the Council. This is sufficient to deem that the creditor’s rights may be deprived of or restricted by the intent of the person who became the shareholder prior to the enforcement of the Promotion Act, and at the same time, the infringement of property rights by retroactive legislation is an infringement of the right to property under retroactive legislation.

(D) In this respect, each of the instant legal provisions is doubtful of the violation of the Constitution in terms of the infringement of property rights and the principle of trust protection by retroactive legislation.

5. Conclusion

Therefore, Articles 17(1), 27(1), and 27(2) of the Promotion Act, which are the premise of the judgment on the merits of the case, is doubtful as to the unconstitutionality of the case on the grounds as seen above. Thus, it is questionable as to the unconstitutionality of the case on the grounds as seen above, to request ex officio an

Judges Noh Young (Presiding Judge)

Note 1) Data responding to inquiries relating to the Corporate Restructuring Promotion Act, the Ministry of Finance and Economy of June 2001; the Ministry of Corporate Restructuring of June 19, 2001; the Committee on Finance and Economy of June 19, 2001

2) Article 2 of the Promotion Act provides that foreign financial institutions with branches, etc. in Korea shall be subject to application by including financial institutions prescribed in Article 59 of the Banking Act, while excluding foreign financial institutions with no branches, etc. in Korea.

See Supreme Court Decision 2004Na39445 Decided January 13, 2005