How much can a secured creditor assert as a bankruptcy claim?

For whom and with respect to what property does a right of separate satisfaction arise

Article 411 of the Debtor Rehabilitation and Bankruptcy Act provides that a person who holds a retention right, a pledge, a mortgage, a security interest under the Act on Security over Movable Property, Claims, etc., or a Jeonse right over property belonging to the bankruptcy estate has a right of separate satisfaction with respect to the property that is the object thereof. Since in this provision the right of separate satisfaction is written as a right arising with respect to the property that is the object of the security, and not with respect to the secured creditor as a whole, it is first necessary to specify what security exists over which property. In practice material of this kind, the scope of satisfaction obtainable by way of security may vary depending on whether there is only one collateral for a single loan and whether other security exists over the same property, so the type and subject of the security are organized first.

Article 412 of the Debtor Rehabilitation and Bankruptcy Act provides that a right of separate satisfaction is exercised without resort to bankruptcy proceedings. Because rights over the collateral are enforced outside bankruptcy proceedings, the Records are read with attention to the structure whereby the amount recovered by way of security is determined not by the distribution schedule but in the course of disposing of the collateral. In individual rehabilitation proceedings as well, Article 586 of the same Act applies Articles 411 through 415 mutatis mutandis, deeming the bankruptcy estate to be the individual rehabilitation estate and the declaration of bankruptcy to be the order commencing rehabilitation proceedings under the individual rehabilitation procedure, so the same question may reappear in a different Procedure.

The portion that may be exercised as a bankruptcy claim and the effect of waiver

The main text of Article 413 of the Debtor Rehabilitation and Bankruptcy Act provides that a holder of a right of separate satisfaction may exercise its rights as a bankruptcy claim only with respect to the amount of the claim for which satisfaction cannot be obtained by exercising that right of separate satisfaction. This provision bears directly on the question because it establishes that the entire loan balance does not automatically become a bankruptcy claim, and that the portion unsatisfied by way of security defines the scope of what is exercised as a bankruptcy claim. Accordingly, rather than concluding that, merely because the creditor's filing stated the entire balance, the entire amount was asserted as a bankruptcy claim, the separately entered shortfall column is read together with it.

The proviso to the same Article provides that exercise as a bankruptcy claim with respect to the claim amount for which the right of separate satisfaction was waived is not affected by the waiver. If there was a waiver, that amount may be treated as a bankruptcy claim separate from the security, so the materials in which the intent to waive appears, and the scope in which it appears, affect the calculation. In practice material of this kind, since there are no materials evidencing a waiver, a calculation premised on a waiver and a calculation not so premised are placed side by side.

The expected shortfall entered in the filing and the figures in the list

Article 447 (1) of the Debtor Rehabilitation and Bankruptcy Act provides that a bankruptcy claimant shall file with the court the amount and cause of the claim and the like within the filing period and submit documentary evidence or a certified copy or transcript thereof, and paragraph (2) of the same Article provides that a holder of a right of separate satisfaction shall, in addition to those matters, file the object of the right of separate satisfaction and the amount of the claim for which satisfaction cannot be obtained by exercising it. Under this provision, the fact that the creditor's filing separately stated the amount not obtainable by way of security along with the balance may be read as conforming to the form required by the filing. Because the shortfall at the filing stage is a figure entered before disposal is completed, it is confirmed together on which market value materials and as of which reference date that amount is based.

The amount entered in the debtor's list after deducting the expected sale value in advance appears to be a figure of the same nature as the shortfall in the filing, but where the reference date and the market value materials differ, the two may embody different projections. A frequent confusion arises from entering the loan balance currently remaining and the amount expected to remain after disposal in the same column, so it is safer to place the two figures in separate columns. Where there are multiple expected sale values, rather than selecting any one of them, the shortfalls calculated on each value are placed side by side so as to reveal whether the difference arose from the market valuation.

Proof required of a holder of a right of separate satisfaction at the distribution stage

Article 512 (1) of the Debtor Rehabilitation and Bankruptcy Act provides that a claimant holding a claim as to which an objection has been raised is excluded from that distribution unless, within 14 days counting from the day on which the distribution announcement is made, it proves that it has applied for a claim investigation and confirmation decision, filed a lawsuit, or continued one. Paragraph (2) of the same Article provides that a holder of a right of separate satisfaction is excluded from distribution unless, within that period for exclusion from distribution, it proves to the bankruptcy trustee that it has commenced the disposal of the object of its right and substantiates the amount of the claim for which satisfaction cannot be obtained by that disposal.

This provision bears on the question because the expected shortfall entered in the filing alone can hardly be regarded as satisfying all the requirements at the distribution stage, and a separate fact, namely the commencement of disposal, together with substantiation of the amount not obtainable by that disposal, is also required. In practice material of this kind, since disposal has not yet begun, it is noted at which stage the present figures belong, and a place is left for recalculation after commencement of disposal.

조문만으로 답할 수 없는 부분과 기록을 대하는 태도

The actual amount of the claim that cannot be satisfied by way of security is not determined by the provisions alone but lies in the realm of fact, which must be confirmed across the entire Records from the results of the disposal of the collateral or the market valuation preceding it. Where market value materials were produced at different points in time and by different methods, rather than deciding in advance which is more accurate, it is safer to record side by side the circumstances of their preparation and the reference dates.

Legal principles that may affect the calculation, such as the priority where multiple security interests exist over the same property or the treatment of interest and costs exceeding the scope of the security, are questions requiring separate examination, and this commentary does not address their conclusions. Matters concerning the availability of discharge or the distribution results of individual cases likewise lie outside the scope of this commentary.

Checks, in order

1. Place side by side and verify the amounts and reference dates for the same loan as stated in the balance notice, the debtor's list, and the claim filing.
2. Verify over which property and of what kind the security was created, and whether other security exists over the same property.
3. Verify whether the claim filing separately states the object of the right of separate satisfaction and the amount of the claim that cannot be satisfied by way of security.
4. For each expected sale value, verify the time of preparation and the method of calculation of the market value materials.
5. Verify whether there are Records showing that disposal of the collateral has commenced, or materials containing an intent to waive the right of separate satisfaction.

Articles discussed

• 채무자회생및파산에관한법률 제411조Provides that a person who holds a retention right, a pledge, a mortgage, a security interest under the Act on Security over Movable Property, Claims, etc., or a Jeonse right over property belonging to the bankruptcy estate has a right of separate satisfaction with respect to the property that is the object thereof.
• 채무자회생및파산에관한법률 제412조Provides that a right of separate satisfaction is exercised without resort to bankruptcy proceedings.
• 채무자회생및파산에관한법률 제413조Provides that a holder of a right of separate satisfaction may exercise its rights as a bankruptcy claim only with respect to the amount of the claim for which satisfaction cannot be obtained by exercising the right of separate satisfaction, and that this does not affect the exercise, as a bankruptcy claim, of the rights to the amount of the claim for which the right of separate satisfaction has been waived.
• 채무자회생및파산에관한법률 제447조 제2항Provides that a holder of a right of separate satisfaction shall, in addition to the matters for filing such as the amount and cause of the claim, file the object of the right of separate satisfaction and the amount of the claim for which satisfaction cannot be obtained by exercising it.
• 채무자회생및파산에관한법률 제512조 제2항Provides that a holder of a right of separate satisfaction is excluded from distribution unless, within the period for exclusion from distribution, it proves to the bankruptcy trustee that it has commenced the disposal of the object of its right and substantiates the amount of the claim for which satisfaction cannot be obtained by that disposal.
• 채무자회생및파산에관한법률 제586조Provides that Articles 411 through 415 are applied mutatis mutandis in individual rehabilitation proceedings, with the bankruptcy estate deemed to be the individual rehabilitation estate and the declaration of bankruptcy deemed to be the order commencing rehabilitation proceedings under the individual rehabilitation procedure.

Questions that remain

• By what materials can the expected shortfall before disposal is completed be supported?
• Where there are market value materials from different points in time, what figure can be entered in the list and with what notation?
• In what form of materials can an intent to waive the right of separate satisfaction be read?