Where Does a Creditor's Revocation Action Go Once Bankruptcy or Individual Rehabilitation Begins? The Bar on Suits by Individual Creditors, the Trustee's Taking Over of the Suit and Amendment to an Action for Avoidance, Jurisdiction, and the Exclusion Period

Question

A creditor who considers that the debtor has diverted assets seeks, through the creditor's right of revocation under Article 406 of the Civil Act, revocation of the act and restoration to the original state. If, however, a declaration of bankruptcy or a decision to commence individual rehabilitation procedures is made against the debtor during the litigation or before the action is filed, the individual creditor's right and the right of avoidance in the collective proceedings come to overlap in respect of the same assets.

The first question of this brief is whether, after commencement, an individual creditor may newly file a creditor's revocation action. The second question is whether, if an action so filed is unlawful, the path by which the bankruptcy trustee takes over that litigation and converts it into an action for avoidance is also closed.

The third question concerns the forum and timing of the proceedings: which court hears a case in which the suit has been taken over and the claim amended, and by reference to what point in time the period for exercising the right of avoidance is regarded as having been observed. In large insolvency cases, these questions determine whether the assets available to creditors are recovered, before the merits are ever reached.

This brief does not recommend an outcome in any particular case. It sets out the materials to be checked, by reference to the law in force at the time of the act, and the points at which interpretations diverge, and leaves the judgment to the reader.

Material to check

First, align the dates. The date on which the creditor's revocation action first became pending before the court, the date of the declaration of bankruptcy or of the decision to commence individual rehabilitation procedures, the date on which the bankruptcy trustee or the debtor took over the litigation, and the date on which the claim was amended to an action for avoidance should be set out on a single line. Whether the action was filed before or after commencement determines whether it is lawful, and the timing of the taking over and the amendment feeds into the determination of jurisdiction and of the exclusion period.

Next, check the provisions. Article 406(1) of the Debtor Rehabilitation and Bankruptcy Act provides that, where litigation brought by a bankruptcy creditor under Article 406(1) of the Civil Act or Article 8 of the Trust Act is pending before a court at the time of the declaration of bankruptcy, the litigation proceedings are suspended until they are taken over or the bankruptcy proceedings are terminated, and Article 406(2) applies Article 347 mutatis mutandis. Article 347(1) provides that the bankruptcy trustee or the other party may take over that litigation.

The method of exercising the right of avoidance and jurisdiction are governed by Article 396 of the same Act. Article 396(1) provides that the right of avoidance is exercised by the bankruptcy trustee by way of an action, a petition for avoidance or a defence, and Article 396(3) provides that such action and petition for avoidance fall within the exclusive jurisdiction of the court in which the bankruptcy case is pending. It must be confirmed from the record whether the court before which the case is pending is the court in which the bankruptcy case is pending, and whether the case is at first instance or on appeal.

The period for exercise is laid down in Article 405 of the same Act. The right of avoidance may not be exercised once two years have elapsed from the date of the declaration of bankruptcy, and the same applies once ten years have elapsed from the date on which an act under any subparagraph of Article 391 was performed. Article 406(2) of the Civil Act requires a creditor's revocation action to be filed within one year from the date on which the creditor became aware of the ground for revocation and within five years from the date of the juristic act. The starting point of each of the two periods should be calculated separately.

In an individual rehabilitation case, Article 584 of the same Act should also be examined. Article 584(1) applies the provisions on the right of avoidance mutatis mutandis to individual rehabilitation procedures; Article 584(2) provides that the right of avoidance is exercised by the debtor; Article 584(3) provides that the court may, on the application of a creditor or the rehabilitation commissioner or of its own motion, order the debtor to exercise the right of avoidance; and Article 584(5) sets a period for exercise of one year from the date of the commencement decision and five years from the date of the act.

Finally, gather the materials showing the extent of the assets available to creditors. The amount of the secured claim under any mortgage created over the transferred assets, the value of each parcel of real estate subject to a joint mortgage, and the existence and amount of any lease deposit carrying a right to preferential repayment determine the extent to which the act is subject to revocation or avoidance.

Possible readings

On a suit by an individual creditor after commencement, one reading holds that, since the creditor's right of revocation is a right under the Civil Act, it survives independently of the insolvency proceedings. Another reading, relying on Article 424, under which a bankruptcy claim may not be exercised except through the bankruptcy proceedings, and on the restriction on individual enforcement of rights by individual rehabilitation creditors, holds that after commencement only the right of avoidance in the collective proceedings remains.

On taking over an unlawful action, there is a strict reading that an action unlawful from the outset cannot be taken over, so that the trustee must file a fresh, separate action for avoidance. The opposing reading holds that an action for avoidance substituted by amendment after the taking over is an independent action and need only satisfy its own requirements.

On jurisdiction, the readings divide between one that applies literally the wording that an action for avoidance falls within the exclusive jurisdiction of the court in which the bankruptcy case is pending, so that the case must be transferred at whatever stage it has reached, and one that holds that, because the procedural benefit gained by transfer varies with how far the litigation has progressed, a case that has reached the appellate court should remain where it is.

On the exclusion period, one reading holds that the period should be calculated afresh from the date on which the claim was converted to an action for avoidance, while the opposing reading holds that, because the trustee succeeds to the creditor's position in the litigation, the reference point should be the date on which the creditor's revocation action first became pending. Even on the latter reading, the question remains whether the part of the claim exceeding the extent of the succession must be considered separately.

On the extent of the assets available to creditors, the issue is whether creditor revocation and avoidance are governed by the same legal principles. If the two institutions are regarded as the same in that both preserve the debtor's assets available to creditors, the principle that only the remainder after deducting the amount of the secured claim under a mortgage constitutes the common security of general creditors applies equally to avoidance.

Whether individual rehabilitation and bankruptcy should be read within the same framework is also a point of divergence. Because the right of avoidance is exercised by the trustee in bankruptcy but by the debtor in individual rehabilitation, a separate question arises as to what weight the court's order to exercise the right carries in a structure where the debtor avoids its own acts.

What the decisions held

Supreme Court Judgment of 15 June 2018, 2017Da265129 held that after a declaration of bankruptcy the right of avoidance must be exercised by the bankruptcy trustee, and that "a bankruptcy creditor, who may not exercise a bankruptcy claim except through the bankruptcy proceedings, may not file a creditor's revocation action to preserve the assets available for an individual claim on the premise of individual compulsory execution." At the same time, it held that "even if a creditor's revocation action filed by a bankruptcy creditor after the declaration of bankruptcy is unlawful, the bankruptcy trustee should be regarded as able to take over such litigation and then exercise the right of avoidance by way of amendment of the claim," and that where litigation pending at first instance has been taken over and amended to an action for avoidance, the provision on exclusive jurisdiction applies. The operative part reversed the judgment below, revoked the judgment of first instance and transferred the case to the District Court. Supreme Court Judgment of 9 September 2010, 2010Da37141 held that after a decision to commence individual rehabilitation procedures the right of avoidance must be exercised by the debtor, and that an individual rehabilitation creditor "may not file a creditor's revocation action aimed at preserving the assets available for an individual claim on the premise of individual compulsory execution." The operative part dismissed the appeal.

Supreme Court Judgment of 29 July 2016, 2015Da33656 held that where the trustee takes over a creditor's revocation action lawfully filed before the declaration of bankruptcy, the effects of the litigation are succeeded to as they stand, and that where the right of avoidance is exercised by amendment of the claim within the extent of the succession, "absent special circumstances, whether the exclusion period has been observed must be determined by reference to the time at which the creditor's revocation action before suspension first became pending before the court." The operative part reversed the judgment below and remanded the case. Supreme Court Judgment of 30 May 2017, 2017Da205073 held that if the court before which the case is pending is not the court in which the bankruptcy case is pending, the case must be transferred, but that the provision on exclusive jurisdiction does not apply where the suit is taken over after the case has become pending on appeal, and "it is reasonable to regard the appellate court as continuing to have the authority to hear and determine the litigation." It further held that "where the amount of the secured claim exceeds the value of the transferred assets, the transfer of the assets is not subject to creditor revocation or the exercise of the right of avoidance," and that the amount of the secured claim under a joint mortgage is, absent special circumstances, apportioned in proportion to the value of each parcel of real estate. The operative part reversed the judgment below and remanded the case.

Practical checklist

Does the date on which the creditor's revocation action first became pending precede the date of the declaration of bankruptcy or of the decision to commence individual rehabilitation procedures? If it is later, has it been examined, on the premise that the action is unlawful, whether the path of taking over and amendment of the claim remains open?

Is it clear from the record when, and on what application, the bankruptcy trustee or the debtor took over the suit, and whether the amendment of the claim was substitutive or additional? Has it been distinguished whether the amended claim falls within or outside the extent of the succession?

When the suit was taken over, was the case at first instance or on appeal? If at first instance, has it been confirmed whether the court before which the case was pending is the court in which the bankruptcy case is pending and, if not, whether the transfer procedure was followed?

After deducting the amount of the secured claim under any mortgage created over the transferred assets, the result of apportionment under any joint mortgage, and any lease deposit carrying a right to preferential repayment, does any part remain as the common security of general creditors?

Glossary

Creditor's right of revocation: the right of a creditor, where the debtor has performed a juristic act concerning property rights knowing that it would prejudice the creditor, to petition the court for its revocation and restoration to the original state; it is based on Article 406 of the Civil Act.

Right of avoidance: the right in insolvency proceedings to avoid acts of the debtor that prejudice creditors, among others, and thereby to recover assets. It is exercised by the trustee in bankruptcy and by the debtor in individual rehabilitation.

Taking over: the continuation of suspended litigation proceedings by a new party. By taking over, the trustee succeeds to the creditor's position in the litigation.

The court in which the bankruptcy case is pending: the court before which the bankruptcy case is pending, which has exclusive jurisdiction over actions for avoidance and petitions for avoidance.

Sources and limitations

The provisions are based on the current official texts retrieved from the National Law Information Center on 16 October 2026. The text of the Debtor Rehabilitation and Bankruptcy Act retrieved is the version in force from 2 October 2026.

The official text indicates that Article 406(1) was amended in 2013 and Article 396(3) in 2016. Since judgment 2015Da33656 applies the Act as it stood before the 2013 amendment, and judgment 2017Da205073 notes that before the 2016 amendment the jurisdictional wording referred to the bankruptcy court, the law in force at the time of the act and at the time of the litigation must be checked separately in each case.

The judgments were checked only against the holdings, the summaries of the judgments and the operative parts on the National Law Information Center. The transactions, amounts and specific circumstances of the parties in each case were not checked and are therefore not described.

Points left open

Where a creditor's revocation action unlawfully filed after commencement is taken over and converted into an action for avoidance, whether the exclusion period may be measured from the date on which the action first became pending is not directly answered by judgment 2015Da33656, which concerns only an action lawfully filed.

It remains open whether the holding that the provision on exclusive jurisdiction does not apply in a case taken over after it became pending on appeal holds equally in proceedings after remand by the Supreme Court or where the case returns to first instance.

In individual rehabilitation, a structure in which the debtor avoids its own acts may weaken the incentive to exercise the right of avoidance. The summaries of the judgments do not address how far the court's order to exercise the right and the participation of the rehabilitation commissioner fill that gap.

Whether the same principles carry over unchanged to rehabilitation procedures, and in particular the standards for jurisdiction and time periods where the administrator takes over the suit, lie outside the scope of these four judgments.

When to reconsider

This brief will be revised if the provisions of the Debtor Rehabilitation and Bankruptcy Act on taking over, jurisdiction or the period for exercising the right of avoidance are amended, or if a new Supreme Court decision is rendered on the taking over of actions filed after commencement and on the exclusion period.

It will also be revisited if the filing period under Article 406 of the Civil Act or the provisions on the effects of creditor revocation are changed.

Statutes referred to

• 채무자 회생 및 파산에 관한 법률 제347조, 제391조, 제396조, 제405조, 제406조, 제424조, 제584조
• 민법 제406조

Decisions referred to

• 대법원 2018. 6. 15. 선고 2017다265129 판결 · Decision ledger
• 대법원 2010. 9. 9. 선고 2010다37141 판결 · Decision ledger
• 대법원 2016. 7. 29. 선고 2015다33656 판결 · Decision ledger
• 대법원 2017. 5. 30. 선고 2017다205073 판결 · Decision ledger

Verification status

The cited provisions (Articles 347, 391, 396, 405, 406, 424 and 584 of the Debtor Rehabilitation and Bankruptcy Act, and Article 406 of the Civil Act) were checked against the current official texts on the National Law Information Center on 16 October 2026. The cited judgments (Supreme Court, 15 June 2018, 2017Da265129; Supreme Court, 9 September 2010, 2010Da37141; Supreme Court, 29 July 2016, 2015Da33656; Supreme Court, 30 May 2017, 2017Da205073) were checked against the holdings, the summaries of the judgments and the operative parts in the original texts on the National Law Information Center. The full reasoning of the judgments and the records of the lower courts were not checked.