1. Summary of the Case

A. Who is the party represented by Barun Law?

We represented a defendant who is a corporation purchasing the disputed real estate (a unit of residential-commercial apartment at Gangnam) from a debtor. A plaintiff is the Korea Credit Guarantee Fund, which holds a number of rehabilitation claims against the debtor.

B. Background of the Case

The plaintiff filed a lawsuit against the defendant, who was the beneficiary, to seek compensation equivalent to the debt owed by the debtor and cancellation of the real estate sales contract, claiming that the debtor’s sale of real estate to the defendant constituted an act of fraud to avoid its debt obligation, given that the debtor sold the real estate in a situation where it owed about KRW5.1 billion beyond its assets to the plaintiff. Accepting the plaintiff’s claim, the court of first instance ruled that the real estate sales contract be canceled and the defendant pay approximately KRW1.2 billion to the plaintiff. The defendant appealed to the decision, and we represented the defendant before the appeal court.

A rehabilitation plan was approved for the debtor who sold the real estate to the defendant, and in the approved rehabilitation plan, most of the debtor’s debts to the plaintiff were set to be discharged on the condition of partial repayment.

C. Litigation

The main issue in the appellate trial was whether the claim allegedly held by the plaintiff against the defendant could be discharged pursuant to the decision to approve the debtor's rehabilitation plan. The defendant presented a new argument that most of the plaintiff’s alleged claim had been discharged on the condition that the debtor would repay about KRW85 million, which was the amount of the outstanding rehabilitation claim discounted to the present value, pursuant to the approved rehabilitation plan. The defendant actually posted a deposit for repayment in favor of the plaintiff.

Accordingly, finding the effect of the repayment deposit posted by the defendant, the court decided to recommend a settlement that the defendant pay KRW10 million to the plaintiff in addition to the already deposited amount of KRW85 million. Both the plaintiff and the defendant accepted the court’s settlement recommendation. As a result, the case ultimately ended with the defendant paying KRW95 million to the plaintiff.

The defendant who had been ordered to pay approximately KRW1.2 billion to the plaintiff in the first trial was able to conclude the case in the appellate trial by paying only about KRW95 million.


2. Our Argument and Role

In the appeal trial, we argued that most of the rights to be preserved, which were rehabilitation claims, should be discharged on the condition of partial repayment in accordance with the decision to approve the rehabilitation plan. Then, the plaintiff argued that since the rehabilitation plan stated that the amount of claims subject to exemption would be exempted for each creditor on the day after the date on which cash repayment under the rehabilitation plan has been completed, the exemption does not take effect only through partial repayment. In order to fundamentally remove room for controversy, we posted a deposit for repayment after discounting the amount of the outstanding rehabilitation claims to the present value as stated in the rehabilitation plan.

Then, the plaintiff argued that since the provision for repayment should be made in accordance with the designations of the rehabilitation creditors under the rehabilitation plan, the defendant was not allowed to designate and redeem the preserved claims only, which were a part of the rehabilitation claims, and was required to redeem all rehabilitation claims in addition to the preserved claims.

In response to the plaintiff’s argument, we emphasized that the order of repayment provision in the rehabilitation plan applies only to the debtor and does not apply to cases where the defendant, an interested third party, makes repayment. We also emphasized that an interested third party may designate a debt to be repaid according to the legal principle of designated appropriation under the Civil Act, and that even according to Japanese precedent, where an interested third party’s interest is violated by a special clause prohibiting repayment by the third party, it may constitute an abuse of rights.

Finally, the judge made a decision in which he recommends reconciliation in agreement with our arguments, and the plaintiff accepted it.


3. Significance of the Judgement

Although no ruling was made in the above case, with regard to an issue as to whether an interested third party’s repayment right can be restricted through the order of repayment appropriation established in a rehabilitation plan, a meaningful conclusion could be drawn that it is not possible to limit the third party’s repayment right.

Previously, the Seoul High Court ruled that even a third party with an interest can only repay a debt against the will of the debtor, and the repayment becomes effective when the payment is performed in accordance with the contents of the debt, and that the repayment order applies to cases where a third party makes repayment as a condition or an obligation subordinate to the repayment of the debt by agreement between the creditor and the debtor. The order of repayment agreed between a creditor and a debtor has been given priority over an interested third party’s repayment right. Seoul High Court Decision 2016Na2065894, dated August 24, 2017.

However, in this case, the court decided that an interested third party’s repayment right was an independent right that could not be limited by an agreement between the creditor and the debtor, so the decision was somewhat different from the above ruling. In other words, the decision is intended that the right to repayment of a third party with an interest as a person with a legal interest who is entitled to the protection of subrogation by the payment of the claim to be preserved cannot be arbitrarily limited by an agreement made between the creditor and the debtor. This decision is significant in that, unlike existing lower court precedents, it gives priority to the repayment rights of interested third parties over the established legal relationship between creditors and debtors.


□ Attorneys in charge: Ko Il-kwang, Kim Yong-woo and Kwak Hee-jae