A.D. Dograel, et al. (Law Firm, Kim & Lee, Attorneys Seo-dong et al., Counsel for the defendant-appellant)

Manager of Korea Steel Industry Co., Ltd. and the principal of the case (Law Firm Ha & Yang, Attorneys Yang Jong-soo et al., Counsel for the plaintiff-appellant)

Seoul Central District Court Order 98Ma718 dated September 24, 2004

1. The appeal filed by the appellant is dismissed, respectively. The appeal filed by the appellant is dismissed.

2. The appeal filed by a new Onnuri mutual savings bank, which is the appellant, shall be dismissed;

3. The costs of appeal shall be borne by the appellant.

1. Basic facts

According to the records of this case, the following facts are recognized.

A. On August 27, 1997, the Korea Steel Industry Co., Ltd. (hereinafter referred to as the “Adjustment Co., Ltd.”) was a company for the purpose of producing and selling steel products and was decided to commence corporate reorganization procedures at the lower court on July 27, 199.

B. The principal of the case and the creditor financial institutions are already a device industry in which large-scale facility funds are already invested, and it is necessary to continue technological development and investment. In particular, since enormous funds are required for the completion of the second-stage factory in the iron found out during the construction, it is difficult to restore by their own funds, and they promoted rehabilitation through the sale of the company upon the proposal of the joint management body of the creditor financial institutions.

C. On March 26, 2002, the principal of the case concluded an asset sales contract (hereinafter “instant sales contract”) on February 12, 2003, when promoting the sale of the company by means of international tender through the creditor financial institutions’ joint management body. The principal of the case had concluded an MOU with the appellant on March 26, 2002, and entered into an asset sales contract (hereinafter “instant sales contract”) on February 12, 2003 through the inspection and price adjustment.

C. However, the instant sales contract was cancelled on Nov. 19, 2003 pursuant to the automatic contract termination clause, and the instant contract was cancelled on Nov. 19, 2003 pursuant to the automatic contract termination clause, and the instant contract was confiscated in an amount equivalent to KRW 21.6 billion ($1,000,000 +1,000) of the additional contract performance guarantee money (1,000,000,000 won) as it was first extended until Aug. 18, 2003, although the contract termination period was extended by the time limit for the said contract termination.

D. On June 1, 2004, the principal of the case entered into an open competitive bid with A&A consortium-Hasco consortium on June 1, 2004, and entered into a contract for the purchase and sale of assets with the above consortium on July 31, 2004 through verification and price adjustment. On August 27, 2004, the principal of the case submitted a plan for the alteration of reorganization which reflects the content of the contract for the sale and purchase of assets to the court below. On September 24, 2004, on September 24, 2004, the court below decided to approve the plan for alteration of reorganization (hereinafter “instant approval decision”).

E. The appellant Co., Ltd., Ltd. (hereinafter referred to as “NH”) and Dasco Co., Ltd. (hereinafter referred to as “Dasco”) are a 100% subsidiary of Esco, the appellant, and the appellant was assigned the rights and duties under the asset sales contract of this case from Esco, Ltd. on March 11, 2003.

f. The appellant Co., Ltd. (hereinafter referred to as “new mutual savings bank”) is a reorganization creditor of the reorganization company as a affiliates of the Korea Steel Industry Co., Ltd.

2. Judgment on the appellant’s appeal

A. Summary of the grounds for appeal

(1) Occurrence of priority claims

The rescission of the asset sales contract of this case is based on the intentional deceptive act or abuse of rights of the principal of this case, and constitutes a tort. Accordingly, the appellant suffered damages equivalent to KRW 438.7 billion, and the principal of this case is liable to compensate for the damages, since the appellant suffered damages equivalent to KRW 438.7 billion.

Since the provision on forfeiture of the contract deposit under the Assets Sales Contract of this case is an remarkably unfair legal act and is null and void pursuant to Article 104 of the Civil Act, the principal of this case is liable to return the down payment amount equivalent to 31.6 billion won and interest accrued therefrom, which has been confiscated to E.I.D., the appellant.

(2) Paragraph (1) of the proposed modification of the reorganization program which is the main subject of the appeal

The revised reorganization plan of this case provides that "Where the reorganization company will bear public interest claims due to the case applied for arbitration to the ICC in relation to the asset sales contract released on November 19, 2003, the amount of additional repayment shall not exceed 4.3 billion won out of the amount of additional repayment."

(3) Illegality of the instant authorization decision

The amendment plan of the above reorganization plan does not provide a reasonable decision on the repayment of priority claims in violation of Articles 209 and 216 of the Company Reorganization Act by unfairly limiting the scope of repayment of priority claims to KRW 43.2 billion. In spite of the failure to comply with the principle of equality in violation of Article 229 of the Company Reorganization Act, the court below erred by misapprehending the above amendment plan and approving the amendment plan.

B. Determination on the legitimacy of an appeal

In the grounds of appeal, the appellant clearly expresses that the above appellant has filed an immediate appeal against the instant authorization decision in the position of “public-interest creditor”. Thus, prior to examining the contents of the allegation in the grounds of appeal, it first examines whether the appeal filed by the above appellant is legitimate or not.

Article 11 of the Company Reorganization Act provides, “Any person who has an interest in a judgment on the reorganization procedure may file an immediate appeal against the judgment only where otherwise provided in this Act.” Article 237(1) of the Company Reorganization Act provides, “An immediate appeal may be filed against a decision on the part of the reorganization plan: Provided, That this shall not apply to any reorganization creditor, reorganization security holder, or stockholder who fails to report.”

Therefore, in regard to the decision of the reorganization body, a person who has interests in the trial can file an immediate appeal, and in this context, “interested interests” refers to “legal interests,” and in the end, a person who can file an immediate appeal against the decision of the reorganization body is a person whose status is generally effective and whose interest is infringed upon depending on whether the reorganization plan takes effect, and in detail, the reported reorganization creditors, security holders, stockholders, and companies correspond to them.

However, since public-interest claims under the Company Reorganization Act are required to be repaid from time to time without resorting to reorganization proceedings (Article 209 of the Company Reorganization Act), the reorganization plan provides for reasonable provisions concerning the amount to be repaid in the future with respect to public-interest claims (Article 216 of the same Act), even if the reorganization plan provides for reasonable provisions concerning the amount to be repaid in the future (Article 216 of the same Act), the provisions affecting rights such as the deferment of payment period or the reduction or exemption of claims cannot be provided. However, if the matters concerning changes in rights such as the extension of payment period under the agreement with the creditor are determined and the purport thereof is stated in the reorganization plan, the creditor shall be deemed to be bound (see Supreme Court Decision 90Nu2

Thus, even if the amendment plan of the reorganization plan of this case provides for the alteration of a right with the provision "the method of repayment of the public-interest claim related to AD Capital", it shall not be bound by the above provision of the alteration of a right unless the principal of this case provides for the alteration of a right under the agreement with ED Capital, etc., the appellant shall not be bound by the above provision of the alteration of a right. Thus, even if a public-interest claim exists as asserted by the appellant, the above appellant shall not have any factual or economic interest in the approval decision of this case, apart from the fact that there is a de facto or economic interest. Accordingly, the appeal of this case filed by the appellant of this case is unlawful as it is filed by a non-exclusive appellant.

3. Judgment on an appeal filed by an appellant newly established mutual savings bank

A. Summary of the grounds for appeal

In the reorganization plan approved in the decision to approve the reorganization plan of this case, the "The method of changing the rights to reorganization securities and reorganization claims in Chapter 3 and Section 6 of the method of satisfaction" shall be exempted from the total amount of reorganization claims in affiliated corporations. This provision provides that reorganization claims in affiliated corporations shall be treated as being excessively unfavorable compared to other general reorganization creditors, and this provision violates the fair and equitable differential principle under Article 228 (1) of the Company Reorganization Act.

B. Determination

In order to approve a reorganization plan, the reorganization plan must be fair and equitable under the former part of Article 233 (1) 2 of the Company Reorganization Act. The "fair and equitable" refers to that the conditions of the reorganization plan should be fair and equitable, taking into account the order of rights under Article 228 (1) of the same Act, and the order of rights under Article 228 (1) of the same Act, and that the conditions should be equal as prescribed by Article 229 (a) of the same Act among the right holders of the same kind. The equality here refers not to formal meaning equality, but to substantial equality that does not go against the concept of fairness and fairness. Thus, all rights in the reorganization plan must be divided into six kinds under Article 228 (1) 1 through 6 of the same Act and treated equally, and if it does not go against the principle of equality, it should be divided into two different types of rights under Article 228 (1) 1 through 5 of the same Act within the scope of 90 kinds of rights and interests.

Therefore, both reorganization claims and commercial reorganization claims of financial institutions are general reorganization claims under Article 228 (1) 3 of the Company Reorganization Act, and in principle, they can be treated disadvantageously within reasonable limits, considering the following as a whole: (a) claims of a controlling shareholder, affiliated company, etc. against a reorganization company may be treated disadvantageously within reasonable limits, by taking into account the degree where the controlling shareholder or affiliated company caused the failure in the reorganization company; (b) the cause of the failure in the reorganization company; (c) the degree of the change of rights against other reorganization creditors; and (d) the degree of the change of rights prescribed by other affiliated companies in the bankruptcy procedure.

However, the following circumstances revealed in the record: ① reorganization claims held by the appellant against the reorganization company are not commercial claims but commercial claims, and there is a need to treat the appellant's claims differently from general claims in light of the following circumstances, namely, considering the simple legal financing operation and the distortion of the flow of funds at all affiliate companies of the so-called Korea Steel Industries, including the Korea Steel Industries Co., Ltd. in the process of leading the financial distress of the reorganization company; ② According to the reorganization plan of this case, the above appellant's reorganization plan is being modified to reimburse only 4.3% of the amount of confirmed claims under the original reorganization plan, with respect to general financial institutions, so it is difficult to view that the above appellant's claims are exempted in full at a significantly unfavorable level to the appellant; ③ In light of the above facts, the above reorganization plan's provision pointing out by the appellant is not in violation of the principle of fairness and fairness under Article 233 (1) 2 of the Company Reorganization Act, and thus, it is difficult to view that the above appellant's claims are clearly unfavorable to the appellant.

4. Conclusion

Therefore, the appeal filed by the appellant is dismissed as it is all unlawful, while the appeal filed by the appellant is dismissed as it is without merit. Since the appeal filed by the appellant is without merit, it is dismissed as it is so decided as per Disposition.

Judges Lee Dong-Smoking (Presiding Judge)