CONTENTS
- 1. Corporate Bankruptcy, a Case in Which the Disposal of Important Property Became an Issue Where a Local Government Subsidy Had Been Received
- - Corporate Bankruptcy, the Lower Court's Determination on a Local Government's Claim for the Return of a Subsidy
- 2. Corporate Bankruptcy, the Supreme Court's Determination on a Local Government's Claim for the Return of a Subsidy
- 3. Corporate Bankruptcy, Daeryun's Strategy Regarding an Administrative Agency's Deviation from or Abuse of Discretion
1. Corporate Bankruptcy, a Case in Which the Disposal of Important Property Became an Issue Where a Local Government Subsidy Had Been Received
This is a case in which, during corporate bankruptcy proceedings, the bankruptcy trustee managing the assets of the bankrupt company sought to dispose of the company's important property, but the defendant, Busan Metropolitan City, refused to approve the disposal of the property, which gave rise to the dispute.
In 2013, the agricultural corporation A Co., Ltd. received this subsidy of approximately 1.55 billion won from the head of Gijang-gun, Busan Metropolitan City, over a period of about two years.
Company A constructed a building with that subsidy, and in accordance with the Subsidy Act, the building was subject to a supplementary registration of the restriction that it was ‘property that requires the approval of the head of the competent central administrative agency in the event of use in a manner contrary to the purpose of the subsidy grant, transfer, exchange, lease, or provision as security.’
Company A, however, ceased business in 2016. Accordingly, the defendant issued, on the ground of voluntary closure within the post-management period (ten years from the completion date), a revocation of the grant decision and an order to return concerning the return of this subsidy of approximately 1.3 billion won.
To collect this subsidy return amount, the defendant attached each parcel of real estate of the plaintiff company.
The plaintiff, who became the bankruptcy trustee of A Co., Ltd., obtained authorization for a voluntary sale from the bankruptcy court in 2017, entered into a contract to sell this real estate to the agricultural corporation B Co. for 2.8 billion won, and applied to the defendant for approval to dispose of the important property in order to transfer the building.
The defendant, however, issued a refusal disposition on the ground that ‘approval to dispose of the important property is possible only after this subsidy return amount has been returned in full.’
Corporate Bankruptcy, the Lower Court's Determination on a Local Government's Claim for the Return of a Subsidy
The plaintiff, finding that the subsidy return amount could not be repaid in full once the portion secured by a right of separate satisfaction was excluded from the property belonging to the bankruptcy estate, and that the bankruptcy proceedings could not proceed without realizing the value of the building, came to seek revocation of the refusal disposition denying approval to dispose of the important property against the defendant.
During the corporate bankruptcy proceedings, the lower court determined, with respect to the local government's claim for the return of the subsidy, that there was ‘a reasonable ground to block the progress of the auction proceedings or to refuse the voluntary sale in order to recover the claim for the return amount.’
The lower court took the view that, even if no auction proceedings or bankruptcy proceedings were conducted with respect to each parcel of this real estate, this could not be regarded as unduly infringing the interests of the other creditors or of the plaintiff.
Accordingly, finding that the local government's refusal of the plaintiff's application to dispose of the important property for the purpose of its claim for the return of the subsidy could not be regarded as a deviation from or abuse of discretion, the Busan District Court, which conducted the first instance, and the Busan High Court, which conducted the appellate proceedings, dismissed the plaintiff's appeal.
2. Corporate Bankruptcy, the Supreme Court's Determination on a Local Government's Claim for the Return of a Subsidy
During the corporate bankruptcy proceedings, the Supreme Court reached a different determination concerning the local government's claim for the return of the subsidy.
The Supreme Court determined that refusing approval to dispose of the important property for the transfer of this building solely on the ground that the defendant had not been able to recover the full amount of its claim for the return of this subsidy was contrary to the method of satisfying estate claims provided in the main text of Article 477(1) of the Debtor Rehabilitation and Bankruptcy Act.
Refusing approval to dispose of the important property in accordance with the lower court's determination would, in effect, allow Gijang-gun, Busan Metropolitan City, to seek satisfaction in priority even over other estate creditors or creditors with a right of separate satisfaction, thereby infringing the interests of the other creditors.
The Court further stated that, during the post-management period for the important property, leaving the important property neglected would also cause social and economic loss.
The Supreme Court determined that the lower court's determination contained an error that affected the judgment by misapprehending the legal principles concerning deviation from or abuse of discretion, and it reversed and remanded the lower judgment.
Article 477 of the Debtor Rehabilitation and Bankruptcy Act (Method of Satisfaction Where the Estate Is Insufficient)
(1) Where it becomes clear that the bankruptcy estate is insufficient to satisfy the total amount of the estate claims, the estate claims shall be satisfied in proportion to the amount of the claims not yet satisfied, notwithstanding any priority provided by other statutes. Provided, that this shall not affect the validity of any lien, pledge, mortgage, security right under the 「Act on Security over Movable Property, Claims, Etc.」, or right of lease on a deposit basis that exists with respect to an estate claim.
3. Corporate Bankruptcy, Daeryun's Strategy Regarding an Administrative Agency's Deviation from or Abuse of Discretion
In a judicial review of an administrative agency's discretionary act during corporate bankruptcy proceedings, the court, taking into account the room for the administrative agency's judgment on the public interest based on its discretion, does not reach an independent conclusion but reviews only whether there has been a deviation from or abuse of discretion in the disposition, with criteria that include mistake of fact and violation of the principles of proportionality and equality.
If, in performing an administrative act, an administrative agency fails to weigh the relevant interests at all or omits a matter that should properly be included among the interests to be considered, the act may be regarded as unlawful as a deviation from and abuse of discretion.
In this case, the judgment clearly identified the issues that conflicted with the Debtor Rehabilitation and Bankruptcy Act and the Subsidy Act, and it provided an opportunity to revisit the purpose of the bankruptcy system.
When corporate bankruptcy is pursued, various situations may arise, such as issues related to the performance of the bankruptcy trustee's duties and issues related to the valuation and sale of assets.
In addition, because the course of corporate bankruptcy varies markedly depending on the size of the company, its industry, and the cause of bankruptcy, it is advisable to respond with the assistance of an attorney experienced in corporate bankruptcy.
The Rehabilitation and Bankruptcy Group of Daeryun Law Firm LLP 🔗 assists companies with bankruptcy proceedings, led by attorneys with extensive experience in corporate bankruptcy litigation.
