Open Decision Ledger · Rehabilitation & bankruptcy
Whether the Provision of Security Made Concurrently with New Borrowing While Insolvent Is Subject to Bankruptcy Avoidance
Translated from the Korean original. Read the Korean
Supreme Court, Sept. 21, 2017, 2015Da240447 (judgment)
Case name: 부인권행사
Official text on the National Law Information Center
Question
May the bankruptcy trustee also avoid an act in which a debtor in a state of insolvency provided security to a specific creditor at the same time as taking out a new loan?
Holding
Where the provision of security is made on an exchange basis concurrently with the new borrowing, there is a reasonable balance between the price of the borrowed funds and the value of the collateral, and the act does not give rise to a risk of a disposition prejudicial to bankruptcy creditors, such as concealing or gifting the borrowed funds, then that provision of security is not an act prejudicial to bankruptcy creditors and may not be avoided under the subparagraphs of Article 391 of the Debtor Rehabilitation and Bankruptcy Act.
Summary of the holding, verbatim
이러한 담보제공행위는 파산채권자를 해하는 행위로 볼 수 없어 채무자 회생 및 파산에 관한 법률 제391조 각호에 따라 부인할 수 있는 행위에 해당하지 않는다.
Unofficial English translation
Such an act of providing security cannot be regarded as an act that harms bankruptcy claimants and therefore does not correspond to an act that may be avoided under the items of Article 391 of the Debtor Rehabilitation and Bankruptcy Act.
Disposition
Dismissed Stated in the decision
상고를 모두 기각한다.
Unofficial English translation
All appeals are dismissed.
Form of the test
Elements stated Stated in the decision
신규차입과 동시에 교환적으로 행하여졌고, 차입금과 담보 목적물의 가격 사이에 합리적인 균형을 인정할 수 있으며
Unofficial English translation
having been made in exchange simultaneously with a new loan, and where a reasonable balance between the amount of the loan and the price of the collateral property may be recognized,
Factors
- 신규차입과 동시에 교환적으로 행하여졌고
- 차입금과 담보 목적물의 가격 사이에 합리적인 균형
- 채무자가 차입금을 은닉하거나 증여하는 등 파산채권자를 해하는 처분을 할 우려
Unofficial English translation
• having been made in exchange simultaneously with a new loan
• a reasonable balance between the amount of the loan and the price of the collateral property
• a risk of the debtor making a disposition that harms bankruptcy claimants, such as concealing or giving away the loaned funds
Relation to precedent
States a new standard Read from the decision
채무자가 지급불능 상태에서 특정 채권자에게 담보를 제공하였다고 하더라도
Unofficial English translation
Even where the debtor provided security to a specific creditor while in a state of inability to pay,
Decisions referred to
None listed
Burden of proof
Not addressed Not in the decision
Open question and revisit condition
Even if the borrowed funds were obtained for the purpose of continuing the business, if part of them was actually used to repay existing debts, may it be regarded as presenting no risk of a disposition prejudicial to bankruptcy creditors?
This reading will be re-examined if the requirements for intentional avoidance and avoidance for insolvency under Article 391 of the Debtor Rehabilitation and Bankruptcy Act are amended, or if a subsequent decision addressing the scope of acts made on an exchange basis is issued.
Cross-family AI independent reading & axis check
6 of 8 axes matched GPT-6 Astra (OpenAI, codex CLI) · 2026-10-16
When compared with an independent reading by another AI model (GPT-6 Astra), which read only the original text without seeing the first reading, 6 of the 8 axes matched, and the readings diverged on axis 6 (Relation to precedent) and axis 8 (Open question and revisit condition).
Axis 6 (Relation to precedent): Primary “States a new standard” vs Independent “Cannot be determined”
Because the original text sets out the conditions for excluding avoidance as a general standard, the first reading may read it as a new standard, while because it does not clarify its relationship to existing precedent, the independent reading may read it as cannot be determined.
채무자가 지급불능 상태에서 특정 채권자에게 담보를 제공하였다고 하더라도Axis 8 (Open question and revisit condition): Primary “Even if the borrowed funds were obtained for the purpose of continuing the business, if part of them was actually used to repay existing debts, may it be regarded as presenting no risk of a disposition prejudicial to bankruptcy creditors?” vs Independent “To what extent may the prices of the borrowed funds and the collateral differ while a reasonable balance is still recognized?”
The first reading asks about the effect that using the borrowed funds to repay existing debts has on the risk of a prejudicial disposition, while the independent reading asks about the range of reasonable balance between the borrowed funds and the price of the security.
이러한 담보제공행위는 파산채권자를 해하는 행위로 볼 수 없어 채무자 회생 및 파산에 관한 법률 제391조 각호에 따라 부인할 수 있는 행위에 해당하지 않는다.Raw responses and comparison record: Protocol · Blind readings (JSONL) · Axis comparison (JSONL) · SHA-256 (JSON)
Lower-court contrast & scope of application
Lower-court reading vs. Supreme Court holding
Lower-court context: The court below held that the creation of security by Jeon-il Mutual Savings Bank was made not to secure existing debts but on an exchange basis concurrently with the borrowing of funds undertaken to avoid measures such as the business suspension imposed by the Financial Supervisory Service and to pursue the continuation of the business, and that, since there was no possibility that the borrowed funds would be diverted to other purposes or seized, it could not be definitively concluded that the act was prejudicial to bankruptcy creditors or that the debtor recognized that result. The court below added a hypothetical holding that, even if the result were prejudicial to bankruptcy creditors, this was an exceptional case that is socially justifiable.
Supreme Court standard: The Supreme Court considered the holding of the court below to be proper, and found that the holding that the act was not one prejudicial to bankruptcy creditors encompasses the finding that it falls under neither intentional avoidance nor avoidance for insolvency, so there was no omission of reasoning. Stating that the hypothetical and supplementary holding of the court below regarding social justification had no effect on the outcome of the judgment, it dismissed the final appeal in its entirety.
Distinguishing conditions
- Where the provision of security was made not concurrently with new borrowing but subsequently to secure existing debts
- Where the value of the collateral is excessively large relative to the borrowed funds so that no reasonable balance can be recognized
- Where there is a risk that the borrowed funds may be concealed or gifted, or diverted to other purposes
Record verification notes
Before asserting the same conclusion, one needs to check the chronological relationship between the borrowing and the creation of the security, the ratio of the appraised value of the collateral to the borrowed funds, and the actual use of the borrowed funds.
From the official text
Points at issue
채무자가 지급불능 상태에서 특정 채권자에게 담보를 제공한 행위가 신규차입과 동시에 교환적으로 행하여졌고, 차입금과 담보 목적물의 가격 사이에 합리적인 균형을 인정할 수 있으며, 차입금의 은닉 또는 증여 등 파산채권자를 해하는 처분을 할 우려를 생기게 하는 것이 아닌 경우, 담보제공행위가 채무자 회생 및 파산에 관한 법률 제391조 각호에 따라 부인할 수 있는 행위에 해당하는지 여부(소극)
Unofficial English translation
Whether an act whereby a debtor in a state of inability to pay provided security to a specific creditor, which was made in exchange simultaneously with a new loan, for which a reasonable balance between the amount of the loan and the price of the collateral property may be recognized, and which does not give rise to a risk of the debtor making a disposition that harms bankruptcy claimants, such as concealing or giving away the loaned funds, falls under an act that may be avoided under the items of Article 391 of the Debtor Rehabilitation and Bankruptcy Act (negative)
Summary of the holding
채무자가 지급불능 상태에서 특정 채권자에게 담보를 제공하였다고 하더라도 이것이 신규차입과 동시에 교환적으로 행하여졌고, 차입금과 담보 목적물의 가격 사이에 합리적인 균형을 인정할 수 있으며, 이로써 채무자가 차입금을 은닉하거나 증여하는 등 파산채권자를 해하는 처분을 할 우려를 생기게 하는 것이 아니라면 이러한 담보제공행위는 파산채권자를 해하는 행위로 볼 수 없어 채무자 회생 및 파산에 관한 법률 제391조 각호에 따라 부인할 수 있는 행위에 해당하지 않는다.
Order
상고를 모두 기각한다. 상고비용은 원고가 부담한다.
Unofficial English translation
All appeals are dismissed. The costs of the final appeal shall be borne by the plaintiff.
Provisions referred to
채무자 회생 및 파산에 관한 법률 제391조
Read 2026-10-16 · Cross-read 2026-10-16. All quotes matched against the official text. The Chinese-character placeholders the court used for anonymised parties are given in their Korean readings, and parenthetical Chinese-character glosses are omitted.
Every entry is published only after all quotes have been matched character by character against the official text, and audited by an independent second reading from a different model family across all eight axes. Both agreed axes and text-grounded interpretive divergences are recorded openly. The ledger is a research record, not an assessment of the court or advice on any matter.
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