Does a suit to avoid a disposal end when the reorganization proceedings close? Supreme Court Decision 2005Da59307 on the avoidance right being extinguished

Question

Article 78 of the former Company Reorganization Act, as the Supreme Court describes it, gave the receiver a right to avoid dispositions by which the company's property was improperly disposed of before the order opening reorganization proceedings, so that the property could be recovered to keep the company's business going and rehabilitate the company. Where such a right, or a claim to have property returned or its value repaid, is being litigated when the reorganization proceedings come to an end, the question is whether the right and the litigation survive the close of the proceedings, and whether anyone other than the receiver may carry the litigation on.

Decision 2005Da59307 raises that question on an avoidance action brought by the receiver of the reorganized company, Company ○○, against Company △△△ Savings Bank. The receiver sued over the defendant's promissory note claim founded on a final judgment, on the ground that the endorsement which gave rise to that claim, made by the applicant for litigation succession, Company ○○, was subject to avoidance under Article 78. Reorganization proceedings were opened against Company ○○ on 14 May 2003 in Seoul Central District Court Case 2003Hoe9, the reorganization plan was confirmed, and after the appellate judgment a decision concluding the proceedings was given on 27 September 2005 and became final around that time. Company ○○ then applied to succeed to the litigation, and the Court had to decide whether there was anything left to succeed to.

Material to check

The provisions are Articles 78, 82 and 271 of the former Company Reorganization Act, cited by the decision as repealed by Article 2 of the Addenda to the Debtor Rehabilitation and Bankruptcy Act (Act No. 7428, 31 March 2005), with Articles 100, 105 and 283 of the current Act indicated as their reference points. Their text is not given in the texts read for this brief. The decision describes Article 78 as providing the avoidance right: a peculiar institution of the Act, recognised so that company property improperly disposed of before the opening order could be recovered and the company's business maintained and rehabilitated.

The decisions are Decision 2005Da59307 and the two it cites. Decision 95Da30253 (13 October 1995) concerned an avoidance action pending when a decision revoking the reorganization proceedings became final, and stated the same rule. Decision 2002Da46058 (22 July 2004) applied the same rule where the decision concluding the proceedings was given on 15 June 2004 while the appeal was still pending, and separately held, on the facts before it, that a beneficiary's right under a trust arrangement was not affected by the reorganization proceedings even though the beneficiary had filed its preferential right as a reorganization security right and failed to bring a suit to confirm it within one month of the administrator's objection.

Possible readings

Read with Decision 95Da30253, the avoidance right under Article 78 is extinguished when the reorganization proceedings are concluded. It is a right that only the receiver can exercise, on the premise that the proceedings are running. Even where the right was exercised while the proceedings were running, if the proceedings end before property is recovered to the company, the right to demand from the other party the return of the property or the repayment of its value, as the effect of the exercise of the avoidance right, is extinguished as well.

A second reading follows from that consequence for pending litigation. Where a decision concluding the reorganization proceedings becomes final while an avoidance action, or a claim founded on the exercise of the avoidance right, is still pending, the receiver's capacity disappears at the same moment as the right relating to the suit, and that right is extinguished absolutely. The Court in Decision 2005Da59307 declared the suit terminated and dismissed the application to succeed to it, rather than reaching the merits of the underlying claim.

A third reading is that the stage of the litigation makes no difference. Decision 95Da30253 applied the rule where the proceeding ended in revocation of the proceedings, and Decision 2002Da46058 applied it where the conclusion decision came while the case was on appeal, after the lower courts had dismissed the receiver's claim. Decision 2005Da59307 applies it where the conclusion decision came after the appellate judgment and simply held that the suit ended by the conclusion of the proceedings.

What the decisions held

Supreme Court Decision 2005Da59307 (12 October 2006) held that the avoidance right under Article 78 of the former Company Reorganization Act is extinguished by the conclusion of the reorganization proceedings, and that where the proceedings end before property is recovered to the company, the claims arising from the exercise of the right are extinguished too, so that where a decision concluding the proceedings becomes final while an avoidance action or a claim founded on the avoidance right is pending, the receiver's capacity disappears together with the right relating to the suit, the right is extinguished absolutely, and no one may succeed to it.

On the facts, the Court found that the action was an avoidance action brought by the receiver against the defendant's promissory note claim, on the ground that the endorsement by Company ○○, which caused that claim, was a target of avoidance under Article 78; that reorganization proceedings were opened against Company ○○ on 14 May 2003 in Seoul Central District Court Case 2003Hoe9, its reorganization plan was confirmed and the proceedings ran on; and that after the appellate judgment of the Seoul High Court of 2 September 2005 (2004Na81224), a decision concluding the reorganization proceedings was given on 27 September 2005 and became final around that time. Applying the rule, the Court declared that the suit between the plaintiff and the defendant was terminated by that conclusion decision, dismissed the application of Company ○○ to succeed to the litigation, and ordered Company ○○ to bear the costs of the succession application.

Points left open

The rule on the claims for return or repayment is stated with a condition: they lapse where the property has not been recovered to the company before the proceedings end. The decision does not say what becomes of the claim where property was already recovered, or where return of the property or repayment of its value had already been obtained, before the conclusion decision became final, and it does not address partial recovery.

The decision does not decide whether the endorsement by Company ○○ was in fact liable to avoidance, or anything else on the merits of the promissory note claim founded on the final judgment; those questions were not reached because the suit was declared terminated. Nor does it say whether some claim on a different basis, not founded on the avoidance right, could be brought afterwards, or how the rule applies to parties other than the receiver and the counterparty to the avoided disposition.

When to reconsider

We revisit this brief if a later Supreme Court decision states what happens where property was recovered before the proceedings ended, if one addresses whether a claim on another basis survives the close of the proceedings, or if Articles 100, 105 or 283 of the Debtor Rehabilitation and Bankruptcy Act are amended.

Statutes referred to

• 구 회사정리법 제78조, 제82조, 제271조

Decisions referred to

• 대법원 2006. 10. 12. 선고 2005다59307 판결 · Decision ledger
• 대법원 1995. 10. 13. 선고 95다30253 판결 · Decision ledger
• 대법원 2004. 7. 22. 선고 2002다46058 판결

Verification status

The texts read for this brief were read at the National Law Information Center (law.go.kr) on 24 October 2026: Decision 2005Da59307 in its published summary, holdings, cited provisions, cited precedents and full reasons, Decision 95Da30253 in its published holdings and summary, and Decision 2002Da46058 in its full text. The three cited articles are named as the former provisions the decision cites, whose current text is not given in the texts read for this brief.