Lawsuit for Revocation of a Fraudulent Act

A lawsuit for revocation of a fraudulent act is a legal procedure to revoke an act, such as where a debtor intentionally conceals property or sells it to another person in order to protect himself, and to return the property to the creditor.

In other words, it is a legal procedure conducted to protect the creditor.

A debtor who is required to perform an obligation may attempt to conceal his property in order to avoid performing it.

Alternatively, the debtor may evade the creditor's collection efforts by transferring property to another person's name, gifting it, or selling it.

In this way, an act that reduces the debtor's total assets and thereby makes the creditor's compulsory execution difficult is called a fraudulent act.

A lawsuit for revocation of a fraudulent act is the legal procedure by which a creditor requests the court to revoke such a fraudulent act of the debtor.

Let us review the procedure for a lawsuit for revocation of a fraudulent act.

1. Preparing to file the suit

-Securing materials that can prove whether the disposal of the debtor's property is a fraudulent act, the state of insolvency, and the beneficiary's bad faith
-Confirming the property that can be recovered through revocation of the fraudulent act

2. Application for a preservative measure

-Before filing the lawsuit, applying for a provisional attachment or a provisional injunction prohibiting disposal in order to prevent the property from being transferred again to a third party or disposed of

3. Filing the suit

-Filing a civil lawsuit with the court having jurisdiction to seek revocation of the fraudulent act and restoration to the original state
-The principal defendant is the beneficiary or the subsequent acquirer

4. Submission of evidence and examination

-Submitting materials that satisfy the substantive requirements, such as the debtor's bad faith and the beneficiary's awareness
-Comprehensively organizing the relevant precedents and the facts

5. Judgment and subsequent execution

-When the court recognizes the act as a fraudulent act, the legal act is revoked and restoration to the original state is ordered
-The creditor does not immediately receive priority repayment; the claim is collected through compulsory execution procedures

Only where money is returned may priority repayment be recognized as an exception.

Let us review how to respond to a lawsuit for revocation of a fraudulent act.

1. Organizing the relationship with the debtor and proving the existence of the claim

-Securing objective materials such as the debt contract, the loan certificate, the judgment, and notarized documents

2. Determining whether a fraudulent act exists

-Confirming the details of the property disposal (certified copy of the registry, transaction records, and similar materials)
-Identifying information on the beneficiary and the subsequent acquirer

3. Organizing whether the requirements for a lawsuit for revocation of a fraudulent act are met

-Proving the debtor's state of insolvency
-Confirming the debtor's intent and the beneficiary's bad faith

4. Reviewing the extinctive prescription

-Confirming the deadline for filing the suit based on the date the fraudulent act became known and the time the fraudulent act occurred

5. Provisional attachment or provisional injunction as an interim response

-This must always be done in advance to preserve the claim

6. Filing the civil lawsuit

-Seeking revocation of the fraudulent act and restoration to the original state in accordance with the procedure under the Civil Procedure Act

7. Proceeding with compulsory execution after judgment

-Attempting actual collection of the claim by carrying out compulsory execution against the recovered property

Let us review cases of lawsuits for revocation of a fraudulent act.

Case 1. A gift to a spouse to evade delinquent local taxes was recognized as a fraudulent act and revoked

City C filed a lawsuit for revocation of a fraudulent act against Mr. A, who was delinquent on 47 million won in local taxes, regarding his act of gifting a building he owned to his spouse, and the court recognized this as a fraudulent act and rendered a judgment revoking the gift contract.

Mr. A had transferred his only asset, the real estate, to a specially related person without consideration while in a state of delinquency in order to evade a public auction, and City C stated that it planned to proceed with attachment and a public auction disposition after recovering ownership through the lawsuit.

Case 2. The act of waiving an inheritance share through an agreement on the division of inherited property was recognized as a fraudulent act

Mr. A, who was delinquent on more than 900 million won in national taxes, including comprehensive income tax, entered into an agreement on the division of inherited property with the other heirs after his mother's death, vesting the only inherited property, real estate, in the sole ownership of his father (the defendant), and the registration of the transfer of ownership was completed in the defendant's name accordingly.

The National Tax Service determined that Mr. A's substantive waiver of his inheritance through the agreement on the division of inherited property while in a state of excess debt was a fraudulent act obstructing the collection of national taxes, and it filed a lawsuit, which the court recognized as a fraudulent act.

Let us review the points to note in a lawsuit for revocation of a fraudulent act.

▶Revocation is possible only for a monetary claim

The first point to note in a lawsuit for revocation of a fraudulent act is that it must be a monetary claim.

A creditor may file a lawsuit for revocation of a fraudulent act only when the creditor holds a monetary claim, and this does not apply in the case of a specific claim such as a claim for registration of the transfer of ownership.

▶Revocation of a fraudulent act must be done through a trial

A fraudulent act cannot be invalidated by agreement between the parties, and revocation is recognized only through the court's judgment.

▶The opposing party in the suit is the beneficiary or the subsequent acquirer

The defendant must be not the debtor but the beneficiary who gained a benefit through the fraudulent act, or the subsequent acquirer who again took over that property.

▶Compliance with the extinctive prescription is required

The lawsuit must be filed within 1 year from the date the fraudulent act became known and within 5 years from the date the act occurred.

▶The principle that priority repayment is not recognized

Even if the court revokes the fraudulent act and the property is recovered, the creditor does not receive repayment ahead of other creditors.

Except where the property is returned in money, separate compulsory execution must be carried out.

▶A preservative measure such as provisional attachment or a provisional injunction prohibiting disposal is necessary

Before filing the lawsuit, an application for a preservative measure must always be made in advance in order to prevent the property from being disposed of again.

Because of these characteristics, a lawsuit for revocation of a fraudulent act is far more complex and difficult than an ordinary civil lawsuit.

It therefore requires comprehensive judgment, including assessing the practical benefit, developing an evidence-collection strategy, and setting the structure of the burden of proof, so the assistance of a civil litigation attorney is necessary.

Our firm collaborates with an evidence investigation center to lawfully collect the evidence needed for the litigation, and we provide the complex proof procedures and the long process leading up to compulsory execution as a one-stop service.