The decision on discontinuation of rehabilitation procedures for the debtor becomes final and conclusive after authorization was granted for the rehabilitation plan, and the bankruptcy procedure was implemented in accordance with the ex officio declaration of bankruptcy under Article 6(1) of the former Debtor Rehabilitation and Bankruptcy Act. In the event that no corporate debtor's director, etc. was committed prior to an application for suspension of payment, a petition for bankruptcy, or a crime of fraudulent bankruptcy before the application for commencement of rehabilitation procedures, whether the debtor's "application for commencement of rehabilitation procedures" is deemed to be a "payment suspension"

Article 422 Subparag. 2 of the former Debtor Rehabilitation and Bankruptcy Act (amended by Act No. 12892, Dec. 30, 2014; hereinafter “ Debtor Rehabilitation Act”) provides that the main text of Article 422 Subparag. 2 of the former Debtor Rehabilitation and Bankruptcy Act provides that any bankruptcy creditor may not offset his/her liability when he/she bears an obligation against the debtor, knowing that the bankruptcy creditor

Meanwhile, Article 6(1) and (4) of the Debtor Rehabilitation Act provides that where a decision to discontinue rehabilitation procedures becomes final and conclusive after authorization is granted to the debtor who has not been declared bankrupt, the court shall, when it recognizes that the debtor is a cause for bankruptcy, declare bankruptcy ex officio. In such cases, in the application of the provisions of Part III, when there is no application for suspension of payment or bankruptcy prior to the declaration of bankruptcy, the "application for commencement of rehabilitation procedures" or "act of the director (including managing members and other persons corresponding thereto) of the corporate debtor falling under the crime of fraud and bankruptcy under Article 650" shall be deemed as the application for suspension of payment or bankruptcy.

Considering the purport of the provisions that are to smoothly link the rehabilitation procedures with the contents of each of the above provisions in a single category, when the decision to discontinue the rehabilitation procedures becomes final and conclusive after authorization is granted for the debtor and the bankruptcy procedures are performed pursuant to the ex officio declaration of bankruptcy pursuant to Article 6(1) of the Debtor Rehabilitation Act, the debtor’s application for the commencement of the rehabilitation procedures is deemed to be “payment suspension” or “bankruptcy application” which serves as the basis for setting the scope of prohibition of offset in the bankruptcy procedures, without the debtor’s act of director, etc., who is a corporation subject to the suspension of payment, bankruptcy

Articles 6(1) and (4) and 422 subparag. 2 of the former Debtor Rehabilitation and Bankruptcy Act (Amended by Act No. 12892, Dec. 30, 2014);

The bankruptcy trustee of the bankrupt SPS corporation in the new century

Busan Bank Co., Ltd. (Law Firm, Seamen, Attorneys Yoon-ho et al., Counsel for the plaintiff-appellant)

Busan High Court Decision 2015Na56826 decided March 24, 2016

The judgment below is reversed, and the case is remanded to Busan High Court.

The grounds of appeal are examined.

1. Article 422 Subparag. 2 of the former Debtor Rehabilitation and Bankruptcy Act (amended by Act No. 12892, Dec. 30, 2014; hereinafter “Rehabilitation Act”) provides that a set-off may not be made when a bankruptcy creditor bears an obligation against the debtor, knowing that the bankruptcy creditor has been suspended from payment or a petition for bankruptcy.

Meanwhile, Article 6(1) and (4) of the Debtor Rehabilitation Act provides that where a decision to discontinue rehabilitation procedures becomes final and conclusive after authorization is granted to the debtor who has not been declared bankrupt, the court shall, when it recognizes that the debtor is a cause for bankruptcy, declare bankruptcy ex officio. In such cases, in the application of the provisions of Part III, when there is no application for suspension of payment or bankruptcy prior to the declaration of bankruptcy, the "application for commencement of rehabilitation procedures" or "act of the director (including managing members and other persons corresponding thereto) of the corporate debtor falling under the crime of fraud and bankruptcy under Article 650" shall be deemed as the application for suspension of payment or bankruptcy.

Considering the purport of the aforementioned provisions, along with the contents of the provisions, to smoothly link the insolvency procedure between the “Rehabilitation” and the “Bankruptcy” within a single category, when a decision to discontinue the rehabilitation procedure becomes final and conclusive after authorization was granted for the rehabilitation plan and is performed as a bankruptcy procedure pursuant to an ex officio declaration of bankruptcy pursuant to Article 6(1) of the Debtor Rehabilitation Act, without the debtor’s director, etc., who is a corporation subject to the suspension of payment or the bankruptcy petition or the crime of fraud before an application for commencement of rehabilitation procedures is filed, the debtor’s “application for commencement of the rehabilitation procedure” is deemed to be

2. Review of the reasoning of the first instance judgment cited by the lower court and the evidence duly admitted reveals the following facts.

A. On March 4, 2009, the New century SPS Co., Ltd. (hereinafter “debtor”) filed an application for commencing rehabilitation procedures with the Busan District Court. On April 27, 2009, the rehabilitation plan was authorized on December 23, 2009.

B. On December 30, 2013, the administrator of the debtor company, who implemented the authorized rehabilitation plan, deposited a term deposit of KRW 200,000,000,000, which is December 30, 2014, and upon the maturity of the said term deposit, on January 6, 2015, the Defendant re-deposited a term deposit of KRW 200,000,000 (hereinafter “the instant deposit”) with the maturity of January 6, 2016 (hereinafter “the instant deposit”).

C. On January 5, 2015, the Busan District Court rendered a decision to discontinue rehabilitation procedures with respect to the debtor company on the grounds that it was clearly impossible for the debtor company to implement the rehabilitation plan. On January 28, 2015, the Busan District Court declared that the debtor company was declared bankrupt ex officio pursuant to Articles 6(1), 305, and 306 of the Debtor Rehabilitation Act, and appointed the Plaintiff as the trustee in bankruptcy of the debtor company on the same day.

D. On January 28, 2015, the Defendant: (a) made the instant deposit claim as a claim for a loan, which is a rehabilitation claim, as an automatic claim; (b) sent a notice expressing his/her intent to offset the amount of debt on an equal amount of each claim; and (c) sent the notice to the bankruptcy trustee of the debtor company on January 29, 2015 (hereinafter “instant offset”); (d) on January 30, 2015, the Defendant paid KRW 200,005,260, and KRW 199,015,689, as well as KRW 989,571, as the Defendant’s loan claim against the debtor company.

E. Meanwhile, the Defendant was aware that, in the rehabilitation procedure for the debtor company, the Defendant reported the Defendant’s claim as a rehabilitation security right and a rehabilitation claim, and that there was an application for rehabilitation procedures of the debtor company around the time when the debtor company is liable for partial repayment of the rehabilitation security right

3. We examine the above facts in light of the legal principles as seen earlier.

A. Since the decision to discontinue the rehabilitation procedures becomes final and conclusive after authorization was granted for the rehabilitation plan for the debtor company and the rehabilitation procedures are implemented pursuant to the ex officio declaration of bankruptcy under Article 6(1) of the Debtor Rehabilitation Act, it is deemed that the debtor company was suspended from payment or filed a petition for bankruptcy on March 4, 2009 when the debtor company files an application for commencing rehabilitation procedures pursuant to Article 6(4) of the Debtor Rehabilitation Act

In addition, the Defendant, a bankruptcy creditor, was aware of the fact that an application for commencement of rehabilitation procedures deemed as suspension of payment of the debtor company or a petition for bankruptcy was filed at the time when the Defendant is liable for the instant deposit obligation, which is the passive claim of the instant offset (i.e., the Defendant’s automatic claim of the instant offset, is a rehabilitation claim that occurred prior to the commencement of rehabilitation procedures for the debtor company, and thus constitutes a bankruptcy claim in the bankruptcy proceedings against the debtor company; and barring any special circumstance, barring any special circumstance, the instant offset by the Defendant constitutes “when the bankruptcy creditor was aware of the fact that the payment has been suspended or a petition for bankruptcy has been filed, and bears obligations

B. Meanwhile, Supreme Court Decision 2006Da80636 Decided August 24, 2007, which was based on the court below, is a case where the application of Articles 9(1) and 10(1) of the former Composition Act (amended by Act No. 7428 of March 31, 2005) is at issue with respect to the composition procedure that differs in the structure and legal effect of the rehabilitation procedure and the provisions of the law, and it is not appropriate to be invoked in the instant case, since the applicable law and the case are different.

C. Nevertheless, the lower court held that the instant set-off by the Defendant does not conflict with the main sentence of Article 422 subparag. 2 of the Debtor Rehabilitation Act, since the Defendant borne the instant deposit obligation on December 30, 2013, prior to the decision to discontinue the rehabilitation procedures with respect to the debtor company, on the premise that the decision to discontinue the rehabilitation procedures of the rehabilitation court, rather than an application for commencing the rehabilitation procedures of the debtor company, was “payment suspension” under the main sentence of Article 422 subparag. 2 of the Debtor Rehabilitation Act. In so determining, the lower court erred by misapprehending the legal doctrine on the purport of Article 6(1) and (4) and the main sentence of Article 422 subparag. 2 of the Debtor Rehabilitation

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Sang-ok (Presiding Justice)