International Sector Panel
DRBA Complexities and Developments in Korea Law Offices Choi & Kim is a boutique firm specialised in shipping and insurance. The firm has been providing its expertise on bankruptcy/insolvency law in Korea to its clients for many years. C. J. Kim, attorney at law, explained that many major shipping and shipbuilding companies based in Korea went bankrupt or filed for rehabilitation under the Korean insolvency law – Debtors Rehabilitation and Bankruptcy Act (DRBA) – as a result of the slump in the global economy since 2008. “We provided our advices to various clients, mostly creditors, from all over the world on the Korean procedures and the strategies to maximise the payments on their claims in the Korean insolvency proceedings,” he said. “Our strength which distinguishes us from our competitors is that we can meet various different needs of creditors, providing quality service at a reasonable cost. “Since 2008/2009, the number is increasing and we expect that as the shipping market is not rebounding, more cases will come.” The DRBA was enacted in March 2005 based on the UNICITRAL Model Law, therefore it is similar to the insolvency laws in most developed countries allowing cross-border insolvency proceedings. However, Mr Kim noted that there are still unique features to the DRBA, for example the validity of a so-called ipso facto clause, which allows a party to terminate the contract in the event that the counterparty enters the insolvency procedure. “The issue is whether the party could exercise the right to terminate the contract with the counterparty in the Korean insolvency proceedings based on such a clause,” he explained. “The difficulty arises from a conflict of laws. The general principle is that while the governing law of the individual contract shall be applicable
Law Offices Choi & Kim C. J. Kim, Attorney at law Partner Tel: +82-2-734-6374 cjkim@choikim.com www.choikim.com to the substantive issues, DRBA governs matters intrinsic to the Korean insolvency procedures. “The practice is that since an ipso facto clause could infringe the court-appointed receiver’s or trustee’s right, granted under DRBA, to decide whether to terminate or affirm the executory contracts for the benefit of all creditors in general, regardless of whether the clause is valid under the contract’s governing law, the party cannot exercise the contractual right to terminate based thereon. There are other issues, such as a possibility of set off and priority of certain claims over others, which involve a conflict of laws.” Mr Kim stated that the Korean insolvency courts plan to suggest that Parliament amends the DRBA to give debtors undergoing the rehabilitation proceedings some tax benefits. One example would be to postpone the due date for payment of tax on the profit made by the debtor from selling or exchanging shares. “Another would be to recognise the parent company’s financial assistance to its subsidiary undergoing the rehabilitation proceedings as the parent company’s costs as a way of to reduce tax payment by the parent company, which in turn encourages the parent company to assist its subsidiary in the difficult situation,” he concluded.
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