Does Korean law govern the trustee's avoidance of a transfer with foreign elements, and do the debtor's overseas assets belong to the bankruptcy estate? Decision 2025Da210676 on the insolvency law of the forum and 'property not subject to seizure'

Question

Article 382(1) of the Debtor Rehabilitation and Bankruptcy Act provides that all property the debtor has at the time of the declaration of bankruptcy belongs to the bankruptcy estate, and Article 383(1) provides that property that may not be seized does not belong to the estate. Where the debtor's assets are held abroad, or the transaction to be undone has foreign elements, the question is which law decides the trustee's avoidance right and the extent of the estate, and whether overseas assets or obstacles to enforcement abroad fall within 'property not subject to seizure'.

Decision 2025Da210676 raises that question on an avoidance claim by the trustee in bankruptcy of a company. The debtor had contracted, one day before it was declared bankrupt, to transfer to its own representative director 49/100 of the equity in a Chinese corporation, and the trustee brought an avoidance claim against that transfer. The decision addresses three grounds of appeal: the first and second alleged that the court below had misunderstood the law on the scope of the bankruptcy estate or on the governing law of a contract, or had failed to conduct the necessary inquiry, and the third alleged a misunderstanding of Article 391(4).

Material to check

The statutes are Articles 382, 383, 391, 396, 397 and 640 of the Debtor Rehabilitation and Bankruptcy Act. Article 382(1) provides that all property the debtor has at the time of the declaration of bankruptcy belongs to the bankruptcy estate, and Article 382(2) adds claims the debtor may exercise in the future on a cause arising before the declaration of bankruptcy. Article 383(1) provides that property that may not be seized does not belong to the estate, and the following paragraphs allow the court to exempt certain property of an individual debtor. Article 391 lists the acts the trustee may avoid for the estate, and its item 4 covers a gratuitous act and an onerous act to be equated with it, done after a suspension of payment or a bankruptcy petition or within six months before. Article 396(1) provides that the avoidance right is exercised by the trustee through an action, a claim for avoidance or a defence, and Article 397(1) provides that its exercise restores the estate to its former state. Article 640 provides that managers, trustees and other persons authorised by the court in domestic insolvency proceedings have authority to act abroad for those proceedings to the extent permitted by foreign law. The decision also cites Article 3 of the former Bankruptcy Act, repealed by Article 2 of the Supplementary Provisions to the Debtor Rehabilitation and Bankruptcy Act (Act No. 7428 of 31 March 2005), and holds that Article 382(1) abolished the rule that provision contained.

The decisions are Decision 2025Da210676 (18 July 2025) and Decision 2012Da104526, 104533 (28 May 2015), which the decision cites and whose text could not be opened.

Possible readings

Read with the avoidance provisions, the insolvency law of the forum governs the trustee's avoidance. Where insolvency proceedings are opened in Korea and the act to be avoided has foreign elements, matters concerning those proceedings follow the Debtor Rehabilitation and Bankruptcy Act as the law of the insolvency forum. Because the trustee may avoid certain acts of the debtor by action, claim or defence (Articles 391 and 396(1)), and the exercise of the avoidance right restores the estate (Article 397), the object, requirements, procedure and effects of the avoidance are to be determined under the Korean Act absent special circumstances. That is what the decision holds.

A second reading follows Article 382(1) on the reach of the estate. In the decision's account, Article 382(1) abolished the territoriality rule of Article 3 of the former Bankruptcy Act, so the debtor's overseas property also belongs to the bankruptcy estate in principle, and managers, trustees and other court-authorised persons may act abroad for the domestic proceedings to the extent foreign law allows, under Article 640. The fact that the property is located abroad therefore does not take it outside the estate.

A third reading concerns Article 383(1). As the decision explains, property the debtor had at the time of the declaration of bankruptcy is still outside the estate if the Civil Execution Act or certain special Acts, such as the Public Officials Pension Act or the Military Pension Act, prohibit its seizure; that is 'property not subject to seizure'. But the mere fact that the property is overseas, or that compulsory execution is obstructed under the law of the state where it is located, does not make it 'property not subject to seizure' under the Act.

What the decisions held

The Supreme Court dismissed the appeal and put the costs on the plaintiff. It held that, where the act subject to the trustee's avoidance has foreign elements, the object, requirements, procedure and effects of the avoidance are to be determined under the Debtor Rehabilitation and Bankruptcy Act absent special circumstances; that the debtor's overseas property belongs to the bankruptcy estate in principle; and that neither the property's location abroad nor an obstacle to compulsory execution under the law of the situs state makes it 'property not subject to seizure' under Article 383(1).

The court below, the Seoul High Court in its judgment of 23 January 2025 (2024Na2034017), had held that the shares in this case, an overseas asset the debtor held, were included in the bankruptcy estate and were a proper object of avoidance under the Act, and that the transfer was a gratuitous act and an onerous act to be equated with one under Article 391(4). On the first and second grounds of appeal the Supreme Court held that the court below had not misunderstood the law on the scope of the estate or on the applicable law of a contract, nor failed to conduct the necessary inquiry, in any way that affected the judgment; on the third ground it held that the court below had not misunderstood Article 391(4) in any way that affected the judgment.

The facts found were these. The debtor, ○○○ Co., Ltd., was a company selling and distributing health foods, cosmetics and household goods, and the plaintiff was its representative director. On 26 October 2020 Seoul Metropolitan City petitioned for the debtor's bankruptcy, stating that it held tax claims of about 109 hundred million won and that the debtor was clearly insolvent (Seoul Rehabilitation Court, 2020Ha-Hap100477). On 29 November 2022 the debtor contracted to transfer to the plaintiff 49/100 of the equity in the Chinese corporation △△△ (Tianjin) Co., Ltd., which the debtor had held through investment, and all rights based on it. On 30 November 2022 the debtor was declared bankrupt and the defendant was appointed trustee. The defendant brought an avoidance claim (Seoul Rehabilitation Court, 2022Ha-Gi101379), and on 5 September 2023 that court ordered the plaintiff to notify the Chinese corporation that the transfer had been avoided and had lost effect. The case reached the Supreme Court on a judgment of the Seoul High Court of 23 January 2025, and the bench was composed of Justices Sin Suk-hee (presiding), Noh Tae-ak (reporting), Seo Gyeong-hwan and Ma Yong-ju.

Points left open

The decision states its first rule 'absent special circumstances' but does not say what those circumstances are. Whether a foreign element of the transaction, or a connection to a foreign insolvency proceeding, could ever be such a circumstance is not decided.

The decision holds that an obstacle to compulsory execution under the law of the state where the property is located does not make the property 'property not subject to seizure', and points to Article 640 for acting abroad as foreign law allows. It does not decide how a trustee who meets such an obstacle in practice is to proceed, whether the law of the situs state might affect recognition or enforcement there, or whether a rule of foreign law forbidding seizure could in some other way matter to the estate.

When to reconsider

We revisit this brief if a later Supreme Court decision defines the 'special circumstances' that would displace the Korean Act for an avoidance right, if the statute is amended as to the estate or 'property not subject to seizure', or if a decision addresses how Article 640 operates where foreign law blocks enforcement.

Statutes referred to

• 채무자 회생 및 파산에 관한 법률 제391조, 제396조, 제397조, 제382조, 제383조, 제640조
• 구 파산법 제3조

Decisions referred to

• 대법원 2025. 7. 18. 선고 2025다210676 판결 · Decision ledger

Verification status

The texts read for this brief are the decision in its published holdings, summary and reasons, and the current text of the articles it cites, all read at the National Law Information Center on 24 October 2026. The text of Decision 2012Da104526, 104533 could not be opened and is given by number only, and Article 3 of the former Bankruptcy Act appears only as a former version.