1. Case Overview

a. Party Represented by Barun Law

We represented the plaintiff who was an investor investing approximately KRW 2.5 billion in a developer of a real estate development project. The defendant was a newly established company created by the shareholders of the original developer, which had transferred the real estate development rights to the defendant.

b. Background of the Case

The plaintiff invested KRW 2.5 billion in a real estate development company, and the entire investment was used to purchase land for the project. However, the shareholders of the original development company secretly established the defendant company with a similar name, transferring the sole asset of the original company—the development rights—to the new company. This was attempted to leave the original company insolvent and sever the plaintiff’s claims from the development rights, effectively rendering the plaintiff's claims worthless while allowing the shareholders to monopolize the profits.

Upon completion of the real estate development, the plaintiff sought the return of the investment and profits from the defendant, believing the defendant had assumed the original company’s debts. However, the defendant denied having assumed any liability towards the plaintiff and claimed that the plaintiff's claims were only against the now-insolvent original company.

As a result, the plaintiff filed a lawsuit against the defendant, seeking the return of the investment on grounds of disregarding corporate personality and fraudulent conveyance. However, the lower court dismissed the plaintiff’s claims, ruling that there was no intent to evade debts or engage in fraudulent activities.

c. Litigation Details

In the appeal, newly being engaged by the plaintiff, we maintained the original arguments of disregarding corporate personality and fraudulent conveyance while adding a new cause of action based on Article 42 of the Commercial Act, which holds the transferee responsible for continuing the business under the same trade name. We meticulously analyzed the objective facts, demonstrating that the original company had established the defendant to monopolize the development profits and evade debts, thereby establishing the unfairness of the situation through logic and legal arguments.

In particular, we argued that the original company and the newly established defendant were essentially the same entity, functioning as a special-purpose company (SPC) created by the same shareholders. We clarified that the original company’s shareholders had established the defendant specifically to evade debts and that the original company had become a mere shell used as a tool by the defendant until the successful completion of the real estate development, after which it was dissolved. Our clear articulation of the requirements for disregarding corporate personality and the relevant facts, particularly considering the characteristics of real estate development projects and project financing, led to a successful outcome in the appellate court. The Seoul High Court reversed the lower court’s decision, ruling that the transfer of development rights to the defendant was intended to evade debts, allowing the defendant to be held liable (Seoul High Court Decision 2023Na2033734, dated April 3, 2024). The Supreme Court later affirmed this ruling without further proceedings (Supreme Court Decision 2024Da239548, dated July 11, 2024).

2. Our Argument and Role

We thoroughly analyzed and organized the complex facts discussed in the first trial, applying the theory of disregarding corporate personality to the special-purpose company (SPC) involved in the real estate development project. This strategy led to a complete reversal of the first-instance ruling, resulting in a decision fully in favor of the plaintiff, allowing for the recovery of the KRW 2.5 billion investment from the defendant.

3. Significance of the Ruling

The doctrine of disregarding corporate personality, which denies the legal personality of a corporation to hold another entity liable, is a highly exceptional legal principle. This ruling is significant as it clarifies the circumstances and requirements under which this doctrine may apply.

Moreover, the ruling sets a precedent that the doctrine can apply to special-purpose companies (SPCs) established to mitigate risks in real estate development projects. It highlights the importance of thoroughly analyzing and clearly severing any liabilities between the original development company and the SPC to avoid the application of this doctrine in future real estate development projects financed through project financing.

□ Attorneys in charge: Ko Young-Han, Kwon Oh-Jun and Kwak Hee-Jae