Can a pledgee's own realisation of pledged property be avoided after rehabilitation begins? Supreme Court Decision 2009Da76362 on 'acts of execution' under Article 104

Question

Under Article 100(1) of the Debtor Rehabilitation and Bankruptcy Act the administrator may avoid specified acts of the debtor, and Article 104 provides that the avoidance right may be exercised even where an enforceable execution title exists in respect of the act to be avoided or where that act was one taken by way of execution. Where a creditor, rather than the debtor, is the actor, the question is whether the act can be avoided at all, whether it must first be equated to an act of the debtor, and what must be shown besides.

Decision 2009Da76362 raises that question in a case where the defendant, a mutual aid association for specialist construction contractors established under the Framework Act on the Construction Industry, had lent money to the debtor, Cheil GMB Inc., and taken a pledge over the debtor's contribution interest in the association. The debtor finally defaulted on 29 May 2007 and applied for the commencement of rehabilitation, and the order commencing rehabilitation was made on 29 June 2007; on 28 June 2007 the association acquired the pledged contribution certificates and transferred them into its own name, and on 2 July 2007 it declared set-off. The administrator sued to avoid those acts.

Material to check

The statutes are Articles 100, 104 and 391 of the Debtor Rehabilitation and Bankruptcy Act. Article 100(1) allows the administrator, for the benefit of the debtor's property after the commencement order, to avoid four categories of acts of the debtor, including in subparagraph (2) acts prejudicing rehabilitation creditors or rehabilitation secured creditors made after a suspension of payments, an application for commencement of rehabilitation or an application for bankruptcy, together with acts providing security or extinguishing obligations, where the person benefited knew of the suspension of payments or the application, or of the fact that the act prejudices rehabilitation creditors or rehabilitation secured creditors. Article 104 provides that the avoidance right may be exercised even where an enforceable execution title exists in respect of the act to be avoided or where that act was taken by way of execution. Article 391 is the bankruptcy counterpart on avoidable acts.

The decisions are Decision 2009Da76362 and the precedents it cites: Decision 99Da73159 (9 July 2002), which held that avoidance under the Corporate Reorganization Act targets in principle the company's own acts and reaches a creditor's or third party's act only exceptionally, and Decision 2003Da53497 (12 February 2004), which stated the same limited rule and held that an act completing the requirements needed to assert a transfer against third parties is avoidable only if the strict requirements of Article 80 of that Act are met. Decision 2011Da56637 (13 October 2011) is also cited in the decision; its text could not be opened, so nothing is said here about its content.

Possible readings

Read with Decisions 99Da73159 and 2003Da53497, avoidance under the Debtor Rehabilitation and Bankruptcy Act targets in principle acts of the debtor. Where there is no act of the debtor and only an act of a creditor or a third party, it is a target of avoidance only exceptionally, where the debtor colluded with the creditor to fabricate the act or where other special circumstances make it possible to treat the act as one of the debtor.

Decision 2009Da76362 draws a different rule for acts of execution from the wording of Article 104. Because that article expressly contemplates cases where the act to be avoided was taken by way of execution, which necessarily includes decisions of the execution court and other execution bodies where no act of the debtor can intervene, and because, unlike Article 100(1), it places no limit on who performs the act, no special circumstance equating the act to an act of the debtor is required when an act of execution is avoided under Article 100(1)(ii). An act of execution, on this reading, is an act directly aimed at satisfying a claim through an execution title or the realisation of a security right; acts acquiring or creating a security right are not covered.

The same reading extends by analogy to realisation outside an execution body: where a pledgee sells the pledged property directly or takes it itself and applies it to the secured claim, the avoidance right under Article 100(1)(ii) reaches the act as well, since otherwise whether a pledge enforcement prejudicing rehabilitation creditors is avoidable would turn on the accidental circumstance of whether an execution body was involved. Except as to the identity of the actor, the requirements of one of the subparagraphs of Article 100(1) must still be met, so for the avoidance called crisis avoidance under subparagraph (2) the act must prejudice rehabilitation creditors or rehabilitation secured creditors. That question is decided by weighing the procedural features of rehabilitation, in which, unlike bankruptcy, secured creditors have no separate satisfaction and enforcement of security rights is prohibited or stayed after commencement, together with the content of the act and the effect of the presence of the property on maintaining and restoring the debtor company's earning power.

What the decisions held

The Seoul High Court (judgment of 20 August 2009, 2009Na12650) held that the set-off notice contained no act of the debtor, that the association's acquisition and set-off could not be equated to an act of the debtor, that there was no collusion or other reason to equate them and no unfairness to creditors, and so the acts fell outside Article 100(1)(ii) and there was no need to apply Article 104. It therefore rejected the administrator's subsidiary argument. The Supreme Court set that judgment aside and remitted the case to the Seoul High Court.

Applying its rule, the Supreme Court held that once the association acquired the contribution certificates and transferred them into its own name on 28 June 2007 and gave notice on 2 July 2007 of set-off between its loan principal and interest claim of KRW 144,364,410 and the acquisition price debt of KRW 145,843,335 less acquisition costs of KRW 729,210, that is KRW 145,114,125, it definitively enforced the pledge over the contribution certificates, and that the act was open to avoidance under Article 100(1)(ii), by analogy with an act of execution under the latter part of Article 104.

On prejudice, the Court found that the debtor manufactured and processed glass for supply and installation at construction sites, that it needed the bid bonds, performance bonds and defect repair bonds issued by the association to carry on that business, and that under the association's articles the bonding limit for a member was set by reference to the amount of the contribution interest held through contribution certificates. The certificates were therefore a principal asset needed for the debtor to continue its business, and the association's acquisition could readily be expected to cause serious impediment to rehabilitation, so the acquisition prejudiced rehabilitation creditors absent special circumstances. As a result the acquisition of 28 June 2007 could be avoided under Article 100(1)(ii) and the set-off of 2 July 2007 could not maintain its effect. The Court held that the appellate court had misunderstood the law on the target and requirements of avoidance in rehabilitation proceedings and that this affected the result.

Points left open

The decision states the prejudice test as a comprehensive weighing of the procedural features of rehabilitation, the content of the act and the effect of the property on the debtor's earning power, and applies it to these facts only in the form that the acquisition prejudiced creditors 'absent special circumstances'. What counts as special circumstances defeating that finding is left to the court on remand, and the decision does not state the outcome of the weighing for other kinds of pledged property.

The decision holds that, except as to the actor, the requirements of one of the subparagraphs of Article 100(1) must be met when an act of execution is avoided, but it does not discuss whether the knowledge condition in the proviso to Article 100(1)(ii) was satisfied here, nor how far the analogy to acts of execution reaches beyond a pledgee's direct sale or taking of the pledged property, for example to other security rights realised without an execution body. Whether the set-off is affected in any other way is likewise not addressed.

When to reconsider

We revisit this brief if the Seoul High Court rules on remand on the requirements of avoidance or on special circumstances, if a later Supreme Court decision defines the reach of the analogy to acts of execution or the knowledge condition for crisis avoidance where the actor is a creditor, or if Articles 100 or 104 of the Debtor Rehabilitation and Bankruptcy Act are amended.

Statutes referred to

• 채무자 회생 및 파산에 관한 법률 제100조, 제391조, 제104조

Decisions referred to

• 대법원 2011. 11. 24. 선고 2009다76362 판결 · Decision ledger
• 대법원 2002. 7. 9. 선고 99다73159 판결
• 대법원 2004. 2. 12. 선고 2003다53497 판결 · Decision ledger

Verification status

All texts below were read at the National Law Information Center (law.go.kr) on 24 October 2026: Articles 100, 104 and 391 of the Debtor Rehabilitation and Bankruptcy Act in their current text, and the decision in its published holdings, summary and reasons. Decisions 99Da73159 and 2003Da53497 were read in their published holdings and summaries; the text of Decision 2011Da56637 could not be opened.