Whether the court’s authorization on a draft repayment plan, which meets the requirements for authorization under Article 614 of the Debtor Rehabilitation and Bankruptcy Act, is obligated (affirmative); and whether the same applies to the court’s authorization on a draft repayment plan modification (affirmative)

The court’s authorization on a draft repayment plan, which meets the requirements for authorization under Article 614 of the Debtor Rehabilitation and Bankruptcy Act, is not discretionary but is obligated. This legal principle also applies to the court’s authorization on a draft repayment plan to change the repayment plan.

Articles 597(2), 613(1) and (5), 614(1) and (2), and 619(2) of the Debtor Rehabilitation and Bankruptcy Act

Supreme Court Order 2008Ma1311 Decided April 9, 2009

Re-appellant

Busan District Court Order 2013Ra289 dated December 23, 2014

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

The grounds of reappeal are examined.

1. Article 619(1) of the Debtor Rehabilitation and Bankruptcy Act (hereinafter “ Debtor Rehabilitation Act”) provides that “The debtor, rehabilitation commissioner, or individual rehabilitation creditor may submit a draft change of the authorized repayment plan before the repayment according to the repayment plan is completed” with respect to any change in the repayment plan after authorization is granted in the individual rehabilitation procedure, and does not limit the grounds for submitting the draft change of the authorized repayment plan.

Meanwhile, if the debtor submits a draft change to the repayment plan after authorization for the repayment plan is granted, the court shall serve the draft change on the individual rehabilitation creditors, etc., and notify the debtor, individual rehabilitation creditors and rehabilitation commissioners of the date on which the meeting of individual rehabilitation creditors is held and a summary of the draft change to the repayment plan. At the meeting of individual rehabilitation creditors, etc., it is necessary to confirm whether the debtor raises an objection to the draft change to the repayment plan submitted by the individual rehabilitation creditors, etc. (Articles 619(2), 597(2), and 613(1) and (5) of the Debtor Rehabilitation Act).

Furthermore, when any individual rehabilitation creditor or any rehabilitation commissioner does not raise an objection to a draft change in the repayment plan submitted by the debtor and the requirements provided for in each subparagraph of Article 614(1) of the Debtor Rehabilitation Act are met, the court shall decide to authorize the draft change in the above repayment plan; and when any individual rehabilitation creditor or any rehabilitation commissioner raises an objection, the court may decide to authorize the draft change in the repayment plan only when the requirements provided for in each subparagraph of Article 614(2) of the aforementioned Act, other than the requirements provided for in each subparagraph of Article 614(1) of the Debtor Rehabilitation Act, are met (Articles 619(2) and 614(1) and (2) of the same Act).

Furthermore, the court’s authorization on the draft repayment plan, which meets the requirements for authorization under Article 614 of the Debtor Rehabilitation Act, is not discretionary but obligated (see Supreme Court Order 2008Ma1311, Apr. 9, 2009). This legal doctrine also applies to the court’s authorization on the draft repayment plan modification.

2. The reasoning of the lower judgment and the record reveal the following facts.

(1) On January 20, 2012, the re-appellant applied for commencement of individual rehabilitation procedures at Busan District Court Decision 2012Da2775, and on March 16, 2012, the re-appellant decided to commence individual rehabilitation procedures.

(2) The Re-Appellant calculated the monthly average income of KRW 1,739,740, and the monthly average living cost of KRW 830,031 on the basis of a single-person household. The Re-Appellant submitted a draft repayment plan to the first instance court on April 20, 2012 to pay monthly average income of KRW 909,709 ( KRW 1,739,740 - KRW 830,031) after deducting the monthly average living cost from the monthly average income. The first instance court approved the repayment plan on June 19, 2012.

(3) According to the repayment plan authorized as above, the re-appellant repaid the total of KRW 10,06,79 for 11 months from April 20, 2012 to February 20, 2013. On March 21, 2013, the re-appellant submitted the repayment plan to pay the principal of KRW 200,000 per month on the ground that the first instance court approved the repayment plan on October 24, 2012, which was the date of marriage, and the spouse’s pregnancy, etc., increased the number of family members for the last one year due to the increase of 1,945,394 won and KRW 1,745,934 per month on the average living cost, based on the monthly average living cost of 1,745,934 won, calculated the monthly average household income as KRW 200,00,000 per month from March 20 to March 24, 2013.

(4) While the first instance court delivered a draft change to the repayment plan submitted by the re-appellant to individual rehabilitation creditors, etc. and did not confirm whether the individual rehabilitation creditors, etc. raise an objection at the meeting of individual rehabilitation creditors, etc., it did not authorize the draft change to the repayment plan on the ground that the draft change to the repayment plan submitted by the re-appellant falls short of the requirements under Article 614(1)2 of the Debtor Rehabilitation Act (to be fair, equitable and feasible).

3. The lower court upheld the first instance court’s decision on October 24, 2012, on the ground that it is unreasonable for the re-appellant to calculate living cost on the basis that, although it is recognized that the re-appellant was married on October 24, 2012 and gave birth to his/her child on August 28, 2013 while the appeal court is pending, the repayment rate is considerably low compared to the repayment plan approved, and that it is not reasonable to calculate living cost on the basis of three dependents before the birth of his/her child. Thus, the change of the repayment plan cannot be deemed fair and equitable.

4. The above determination by the court below is difficult to accept in light of the facts and legal principles as seen earlier.

If the re-appellant submits a draft change in the repayment plan for reasons such as reduction in available income after authorization of the repayment plan, the first instance court shall serve the individual rehabilitation creditors, etc. with the draft change in the above repayment plan and confirm whether the individual rehabilitation creditors or rehabilitation commissioners have any objection to the draft change in the individual rehabilitation creditors' meeting, etc., and shall, when the requirements under the subparagraphs of Article 614(1) of the Debtor Rehabilitation Act are satisfied without submitting any objection to the draft change in the above repayment plan, decide to authorize the draft change in the repayment plan; and when individual rehabilitation creditors or rehabilitation commissioners state an objection, the court shall examine the circumstances such as reduction in the repayment rate or errors in calculation of living expenses cited by the court below, and determine whether the above draft change meets the requirements under the subparagraphs of Article 614(2) of the Debtor Rehabilitation Act, other than the requirements under the subparagraphs of Article 614(1) of the same Act, and shall have determined whether the draft change meets the requirements for authorization or non-authorization.

In addition, the so-called “fair and equitable principle” under Article 614(1)2 of the Debtor Rehabilitation Act refers to the principle of repayment according to the priority of rights. Thus, it is difficult to view the circumstances, such as the decrease in the repayment rate and errors in the calculation of living expenses, based on the judgment of the court below, as contrary to the aforementioned “fair and equitable principle”. It is related to whether the plan to change the repayment plan submitted by the re-appellant, which should be deliberated and determined only when the individual rehabilitation creditor or rehabilitation commissioner states an objection against the change of the repayment plan, satisfies the “the principle of providing the entire available income” under Article 614(2) of the Debtor Rehabilitation Act.

Nevertheless, the lower court determined that the re-appellant failed to meet the requirements of Article 614(1)2 of the Debtor Rehabilitation Act on the grounds of the reduction in repayment rate or errors in calculation of living expenses, etc., without verifying any objection by individual rehabilitation creditors or rehabilitation commissioners as to the draft change of the repayment plan submitted by the re-appellant. In so doing, the lower court erred by misapprehending the procedures for change of the repayment plan and the legal doctrine on the requirements for authorization thereof after authorization in the individual rehabilitation procedure, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment.

5. 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 Lee Sang-hoon (Presiding Justice)