1. Case Overview
a. Client represented by Barun Law: Plaintiff (Appellant)

b. Background:
The plaintiff, as a general creditor, obtained a payment order against the debtor, while the defendant was a mortgagee of the debtor's real estate. In the voluntary auction proceedings initiated by the defendant, a dividend schedule amounting to KRW 784,000,000 was prepared. The debtor did not raise any objection to the dividend, whereas the plaintiff alone filed an objection.

c. Litigation:
In the dividend objection proceedings, the plaintiff argued: (i) the defendant’s claim was fictitious; (ii) the secured obligation under the mortgage had been extinguished by novation, and (iii) the secured claim was extinguished by prescription. In response, the defendant countered that (i) since the debtor had not raised a dividend objection, the plaintiff as a general creditor could not exercise the debtor’s right to invoke the statute of limitations by subrogation, (ii) the plaintiff’s claim could not be deemed genuinely established, and (iii) the plaintiff’s claim itself was time-barred. Both parties engaged in complex and fierce arguments involving multiple claims, counterclaims, and rebuttals.

2. Judgment
Seoul High Court, Judgment 2024Na2027774, rendered on December 12, 2024 (finalized by the Supreme Court’s dismissal of appeal without deliberation).

3. Grounds for Judgement
While the court of first instance dismissed the Plaintiff’s claims, the appellate court overturned that judgment and ruled entirely in favor of the Plaintiff.
Specifically:
(1) On whether the statute of limitations is interrupted by the exercise of a creditor's right of subrogation, the court held that the effect of exercising a creditor's right of subrogation accrues to the debtor, and thus the effect of interrupting prescription by filing a subrogation action also affects the debtor. However, the filing of a subrogation action does not by itself immediately interrupt the statute of limitations for the preserved claim. If, for any reason, the debtor becomes aware of the exercise of the creditor’s right of subrogation, the debtor may no longer dispose of his own rights. Nonetheless, this circumstance alone, at most, leaves room to recognize the effect of a demand with respect to the preserved claim depending on the circumstances. It cannot be regarded as equivalent to a seizure or judicial notice of litigation that would have the same continuing effect as a demand, whereby the exercise of rights is deemed to persist while the litigation is pending.

(2) On the plaintiff's exercise by way of subrogation of the debtor's right to invoke prescription, if the debtor fails to invoke the defense of prescription during the distribution proceedings in this case and the distribution is completed as is, there is a risk that the debtor may be deemed to have waived the benefit of prescription. Therefore, the plaintiff was entitled to invoke, by way of subrogation, the defense of prescription to the extent necessary to preserve its finalized interest claim. While a creditor cannot exercise by way of subrogation a right that the debtor has already exercised in litigation, the court found that in this case, since the plaintiff had first raised an objection at the distribution hearing and filed the distribution objection lawsuit, asserting the completion of prescription of the loan claim in briefs and other submissions, the plaintiff’s subrogated exercise of the debtor’s right to invoke prescription does not become invalid merely because the debtor subsequently filed a separate lawsuit and exercised the right to invoke prescription in the complaint.

4. Our Argument and Role
This case involved a dividend objection in voluntary auction proceedings initiated by the mortgagee. Neither the debtor nor any senior creditors raised objections to the dividend, leaving only our client, a general creditor, to challenge the distribution. Despite the uphill battle, we meticulously constructed both factual and legal arguments to secure a complete victory for the client.

5. Significance of the Judgment
This decision presents noteworthy interpretations on whether a "general creditor" who raises a dividend objection can exercise by subrogation the debtor's right to invoke the statute of limitations, even when the debtor has not objected, and whether the debtor's awareness of the creditor's exercise of subrogation results in a continued interruption of prescription. This ruling establishes important guidance on creditor subrogation rights and their effect on prescription defenses in dividend objection cases.