[1] In cases where rehabilitation procedures commence with respect to a contract for the purchase of shares concluded by a shareholder opposing the transfer of business, etc. under Article 374-2 of the Commercial Act when both the company and the shareholder have failed to complete the performance, whether the custodian may either cancel the contract for the purchase of shares or perform the company’s obligations and claim for the shareholder’s performance of obligations pursuant to Article 119(1) of the Debtor Rehabilitation and Bankruptcy Act (affirmative); and in cases where part of the obligation for the payment of shares was not performed due to a cause attributable to the company after the exercise of the appraisal right, whether

[2] Where a custodian cancels a contract pursuant to Article 119(1) of the Debtor Rehabilitation and Bankruptcy Act, and the decision to abolish the rehabilitation plan becomes final and conclusive, and the bankruptcy procedure is implemented pursuant to the ex officio declaration of bankruptcy pursuant to Article 6(1) of the same Act, whether the effect of the rescission is affected (negative)

[1] The provisions of Articles 119(1) and 121(2) of the Debtor Rehabilitation and Bankruptcy Act, where rehabilitation procedures commence for either of the parties to an bilateral contract, in which both of the parties have legal and economic relations and functions as a mutual security in principle, with respect to an executory contract, and which has yet to complete the implementation thereof, facilitate the progress of rehabilitation procedures by granting the right to choose whether to rescind the contract or to claim the performance of the other party’s obligation to the custodian, and, in the event the custodian selects the rescission of the contract, perform the duty to restore according thereto, thereby ensuring equity between the parties.

Therefore, with respect to share sales contracts concluded by a shareholder opposing the transfer of business, etc. under Article 374-2 of the Commercial Act, insofar as there is no provision excluding the application of Article 119(1) of the Debtor Rehabilitation Act, insofar as rehabilitation procedures commence for the company when both the company and the shareholder have not completed the performance of all of the aforementioned share sales contracts, the custodian may either rescind a share sales contract or perform the company’s obligations and claim for the shareholder’s performance of obligations pursuant to Article 119(1) of the Debtor Rehabilitation Act.

In addition, the phrase “when the fulfillment is not completed” under Article 119(1) of the Debtor Rehabilitation Act includes the non-performance of part of the obligation, and the reason why the performance is not completed is irrelevant. Thus, even if part of the share-price obligation was discharged due to a cause attributable to the company after the appraisal right is exercised, unless it is difficult to deem that part of the non-performance is in a quid pro quo relationship with the other party’s obligation, the custodian may rescind not only the part partially performed but also the entire contract

[2] Where rehabilitation procedures are abolished following a decision to authorize the rehabilitation plan, it does not affect the implementation of the rehabilitation plan or the effect under the statutory provisions (Article 288(4) of the Debtor Rehabilitation and Bankruptcy Act (hereinafter “DRB”). Thus, if the custodian rescinds the contract before the rehabilitation procedures are discontinued pursuant to Article 119(1) of the Debtor Rehabilitation Act, even if the decision to discontinue the rehabilitation plan becomes final and conclusive and the ex officio declaration of bankruptcy is performed pursuant to Article 6(1) of the Debtor Rehabilitation Act, the effect of the rescission is not affected.

[1] Articles 119(1) and 121(2) of the Debtor Rehabilitation and Bankruptcy Act, Article 374-2 of the Commercial Act / [2] Articles 6(1), 119(1), and 288(4) of the Debtor Rehabilitation and Bankruptcy Act

[1] Supreme Court Decision 99Da60559 Decided April 11, 200 (Gong2000Sang, 1180), Supreme Court Decision 2001Da24174, 24181 Decided October 9, 2001 (Gong2001Ha, 2431), Supreme Court Decision 200Da54659 Decided May 16, 2003 (Gong2003Sang, 1297), Supreme Court Decision 2013Da204140 Decided September 4, 2014 (Gong2014Ha, 2013)

MIFFF-Cho Green Growth Investment Association 5 General member of the three-party Green Growth Investment Association (Law Firm Yang Hun-Hun, Attorneys Shin Jong-sung et al., Counsel for the defendant-appellant)

The Health Ballast Co., Ltd. (Bae & Yang LLC, Attorneys Lee Sung-sung et al., Counsel for the defendant-appellant)

The bankruptcy trustee of J. K.C., Inc., the administrator of J. C. C., who is Nonparty 1’s lawsuit, is Nonparty 2 (Law Firm K.N., Attorneys Park G. et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2014Na4196, 4202, 54566 decided December 12, 2014

The appeal against the defendant is dismissed. The appeal against the independent party intervenor (Counterclaim defendant) is dismissed. The costs of appeal are assessed against the plaintiff (Counterclaim plaintiff).

1. The appeal against the defendant is examined ex officio (ground of appeal No. 2).

According to the records, the Plaintiff (Counterclaim Plaintiff; hereinafter “Plaintiff”) sought against the Defendant payment of the transfer money under the instant assignment contract, but was sentenced to a judgment against the Defendant at the first instance court, and withdrawn the lawsuit against the Defendant with the Defendant’s consent on the second day of pleading in the lower court. The lower court did not render any judgment on the ground that the Plaintiff’s lawsuit against the Defendant was withdrawn.

Nevertheless, while filing an appeal against the lower judgment, the Plaintiff indicated both the Defendant and the Intervenor of the independent party (Counterclaim Defendant; hereinafter “ Intervenor”) in the petition of appeal as Appellee, and as the ground of appeal No. 2, the Defendant asserted that the Defendant is liable to pay the Plaintiff the acquisition amount under the instant credit assignment contract, on the ground that it cannot be set up against MIFF-T Green Growth Investment Association 5, the assignee of the claim, due to the repayment to the transferor of claims after receiving the notice of credit assignment with a fixed date.

However, as seen earlier, the Plaintiff’s lawsuit against the Defendant has already been withdrawn at the original instance. As such, the Plaintiff’s appeal against this is unlawful as it does not have the subject of the appeal.

2. As to the appeal against the Intervenor (Ground of appeal Nos. 1, 3, and 4)

A. Article 119(1) of the Debtor Rehabilitation and Bankruptcy Act provides, “When both the debtor and his other party with respect to a bilateral contract have not yet completed the performance thereof at the time rehabilitation procedures commence, any custodian may rescind or terminate such bilateral contract, or claim for the performance of the other party’s obligation.” Article 121(2) of the same Act provides, “In the case of rescission or termination under the provisions of paragraph (1), when the consideration received by the debtor exists in the debtor’s property, the other party may claim the return thereof, and if not, the other party may exercise his/her right as a priority creditor with respect to the repayment of the value thereof.”

These provisions are common provisions of bilateral contract made with the aim of maintaining equity between the parties by granting the right to choose whether to rescind the contract or to claim the performance of the other party's obligation in case where rehabilitation procedures commence for either of the parties to the bilateral contract where both parties have legal and economic relations and function as a collateral in principle with respect to bilateral contract where both parties have not yet completed the performance (see, e.g., Supreme Court Decisions 9Da6059, Apr. 11, 2000; 2001Da24174, 24181, Oct. 9, 2001; 201Da204140, Sept. 4, 2014).

Therefore, with respect to share sales contracts concluded by a shareholder opposing the transfer of business, etc. under Article 374-2 of the Commercial Act, insofar as there is no provision excluding the application of Article 119(1) of the Debtor Rehabilitation Act, insofar as rehabilitation procedures commence for the company when both the company and the shareholder have not completed the performance of the said share sales contract, the custodian may either rescind the said share sales contract or claim for the company’s performance of obligations, in accordance with Article 119(1) of the Debtor Rehabilitation Act.

In addition, Article 119(1) of the Debtor Rehabilitation Act provides that “when a part of the obligation is not fulfilled” includes the non-performance of the obligation, and the reason for the non-performance of the obligation is irrelevant (see Supreme Court Decision 2000Da54659, May 16, 2003). Thus, even if a part of the share price obligation was discharged due to a company’s cause attributable to the company after the appraisal right was exercised, the custodian may rescind the entire contract as well as the partial non-performance of the obligation, unless it is difficult to deem that a part of the non-performance is in a quid pro quo relationship with the other party’s obligation.

Meanwhile, in cases where rehabilitation procedures are discontinued following a decision to authorize the rehabilitation plan, such termination does not affect the implementation of the rehabilitation plan or the effectiveness under the provisions of the Act (Article 288(4) of the Debtor Rehabilitation Act). If the custodian rescinds the contract before the rehabilitation procedures are discontinued pursuant to Article 119(1) of the Debtor Rehabilitation Act, even if the decision to discontinue the rehabilitation plan becomes final and conclusive and conclusive and the rehabilitation procedures are performed pursuant to the ex officio declaration of bankruptcy under Article 6(1) of the Debtor Rehabilitation Act, the effect of the rescission is not affected.

B. The reasoning of the lower judgment and the evidence duly admitted by the lower court: ① C. C. C. C. (hereinafter “C. K”) decided on the agenda for transfer of business on October 30, 2012 at the general meeting of shareholders; ② C. C. C.C. (2) exercised appraisal rights of the instant shares on November 9, 2012 against the transfer of business; ② determined the purchase price of the instant shares as KRW 2.4 billion until December 27, 2012; ② C.C. (400 million was determined to be paid in cash to the K.C. (2) the K.C. (3) notified the Defendant of the transfer of the instant shares to the Defendant at the time of the implementation of the K.C.’s rehabilitation procedure; and (4) G.C. (2) notified the Defendant of the transfer of the instant shares at the time of the implementation of the K.C.’s rehabilitation procedure at the time of K. 23, 2013.

Examining these facts in light of the legal principles as seen earlier, the sales contract for the instant shares was established by exercising the claim for the appraisal of Chova, and since all or part of the obligations under each of the above contract, which are equal consideration relations at the time the rehabilitation procedure for Jh K commenced, was not performed, the custodian of Jh K may rescind the instant sales contract that constitutes a bilateral contract not performed by both parties pursuant to Article 119(1) of the Debtor Rehabilitation Act, regardless of the existence or absence of any cause attributable to Jh K. Accordingly, the instant sales contract was lawfully rescinded on March 26, 2013 upon the notice of termination of the contract by Jh K’s manager, and even if the decision to discontinue the rehabilitation procedure was finalized after the authorization was granted for the rehabilitation plan for Jh K, it does not affect the validity of the said rescission.

C. The lower court is justifiable to have determined that, as seen in the grounds of appeal, the custodian of K K may rescind the instant share sales contract that constitutes an executory bilateral contract under Article 119(1) of the Debtor Rehabilitation Act. In so doing, the lower court did not err by misapprehending the legal doctrine on the limitation of the right to rescind an executory bilateral contract, the fulfillment of obligations, and the partial invalidation

3. Conclusion

Therefore, the appeal against the defendant is dismissed, and the appeal against the intervenor is dismissed. 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 Park Poe-dae (Presiding Justice)