Whether it constitutes a ground for dismissing an application for commencement of individual rehabilitation procedures under Article 595 Subparag. 6 of the Debtor Rehabilitation and Bankruptcy Act to “when the application for commencement of individual rehabilitation procedures is not in conformity with the general interest of creditors,” solely on the basis that a debtor’s act of repayment or offering collateral to a specific creditor before the application for commencement of individual rehabilitation procedures causes harm to other creditors (negative)

Articles 397(1), 579, 584, 595 subparag. 6, 600(1), 610(3), and 614(1)4 of the Debtor Rehabilitation and Bankruptcy Act

Re-appellant

Jeonju District Court Order 2010Ra25 dated July 14, 2010

The order of the court below is reversed, and the case is remanded to Jeonju District Court Panel Division.

The grounds of reappeal are examined.

1. Article 595 of the Debtor Rehabilitation and Bankruptcy Act (hereinafter “the Act”) provides that one of the grounds for dismissing an application filed for commencing individual rehabilitation procedures, “when the application for commencing individual rehabilitation procedures is not appropriate for the general interest of creditors,” and Article 584 of the Act applies mutatis mutandis to individual rehabilitation procedures (Article 1). The right to set aside under the bankruptcy procedures shall, in principle, be exercised by the debtor (Article 2(2)), but the court may, at the request of a creditor or rehabilitation commissioner or ex officio, order the debtor to exercise the right to set aside (Article 3).

The court below rejected the application for individual rehabilitation procedure of this case based on the judgment below, which held that the re-appellant's act of transferring KRW 20 million to the creditor Sam-ok on December 23, 2008 before submitting the application for the commencement of individual rehabilitation procedure of this case was an act detrimental to creditors and can be subject to avoidance power. The re-appellant's act of selling apartment owned by it on June 30, 2009 and paying the remainder of KRW 18,70,000 after paying the secured debt, etc. as an agency operation fund, and that the above amount not reflected in the liquidation value is larger than the total estimated amount of repayment in the repayment plan of this case submitted by the re-appellant, and it is anticipated to increase the rate of repayment, and that the above individual rehabilitation application of this case was rejected on December 15, 2009 without 6 months after the disposal of this apartment.

2. However, we cannot accept the judgment of the court below for the following reasons.

The individual rehabilitation procedure is a system that can be used when a wage income earner or a business income earner adds the remaining amount of the income less the expenses deemed necessary for livelihood from the income to the repayment of the total amount of the total amount of the repayment to the debtor when the debtor goes bankrupt (Articles 579 and 614(1)4 of the Act). When the individual rehabilitation procedure commences, the bankruptcy procedure for the debtor is suspended and prohibited (Article 600(1) of the Act). The debtor's future income becomes a repayment source for the creditor. If the liquidation value of the debtor's property exceeds the current value of the total repayment by the above method, it is distinguishable from the bankruptcy procedure in terms of the fact that part of the property should be inserted into the repayment plan.

The right to set aside in individual rehabilitation procedures is a system that enables a debtor to recover any property that is deviating from denying its validity where the debtor has committed any act detrimental to his/her creditors with respect to his/her general property before the commencement of individual rehabilitation procedures, and the right to set aside is to restore the property of the debtor who belongs to the individual rehabilitation estate to its original state (Articles 584(1) and 397(1) of the Act), so if the requirements for exercising the right to set aside are satisfied, the court may order the debtor to exercise the right to set aside (Article 584(3) of the Act), at the request of the creditor or rehabilitation commissioner or ex officio (Article 610(3) of the Act). In such cases, when the debtor refuses to comply with the order to revise the right to set aside, the repayment plan may be submitted without authorization for the repayment plan or the individual rehabilitation procedure may be abolished, and if the other party to the exercise of the right to set aside returns the received profits, etc. and thus the repayment plan is reinstated, the plan may be submitted before the repayment plan is completed.

In light of the purport and function of the system that allows a debtor to repay more than the liquidation value of a certain creditor in bankruptcy proceedings, the individual rehabilitation proceedings are systems that are premised on the assumption that the liquidation value should be distributed more than the liquidation value that the bankruptcy proceedings are scheduled. Even in cases where an individual rehabilitation debtor performed an act subject to avoidance before the application for commencement of the proceedings, the law provides the procedure that restores assets deviating from the exercise of avoidance power and redeems more than the liquidation value of the whole property including such act, and takes precedence over the bankruptcy proceedings. In addition, even if the debtor incurred harm to other creditors by performing a simple repayment or security act to a specific creditor before the application for commencement of the individual rehabilitation proceedings, barring any other special circumstances, it cannot be concluded that such circumstance alone does not fit for the general interest of creditors.

Nevertheless, the court below held that the re-appellant's act of a biased act that is the object of avoidance right before the re-appellant's application for commencement of individual rehabilitation procedures and that the deviation assets are larger than the total amount of repayment according to the draft repayment plan submitted at the time of application for commencement of individual rehabilitation procedures constitutes a case against the general interests of creditors. Thus, the court below's order erred by misapprehending the legal principles as to the grounds for rejection of the application for commencement of individual rehabilitation procedures under

3. Therefore, the order of the court below is reversed and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Sung-tae (Presiding Justice)