Is a Bankruptcy in the U.S. “Effective” on Assets in Korea?: Korean Bankruptcy Law Basics
The following article on the interplay between Korean Bankruptcy Law and foreign bankruptcy laws was motivated by a question from a reader from the Korea Times. The following is from a column I used to write for the Korea Times. Please note the present Bankruptcy Law in Korea was amended and the present topic, while interesting, shall not apply to present bankruptcy proceedings. However, take a read – very interesting matter. I shall be posting some of my old articles from a prior weekly column over the next couple of weeks since these articles no longer appear online. Korea an article on Korean Bankruptcy please see: Korean Bankruptcy Law. For an article on Closing a Business in Korea please see: Winding-Up a Korean Company.
Legal Ease Column by Sean Hayes
from Sept. of 2003 (Korea Times)
Dear Sean, I just received notice that a former customer filed for bankruptcy in New York. The bankruptcy court attached his assets in the United States, but the assets didn’t cover the entire debt owed to me. He also has assets in Korea. Can I use the bankruptcy decision to attach assets in Korea? Does a Korean court respect the bankruptcy holding of foreign courts? Confused in New York and Yeouido.
Dear Confused, Article 3 Clause 2 of the Korean Bankruptcy Act states that a “bankruptcy which is declared in a foreign country, shall be ineffective to the property in Korea.” The language seems very clear and the answer to your question also seems very clear, but a recent case sheds a little more light on the issue. (Article written in 2003: Note in 2017: This Bankruptcy Law Has been Amended. The modern Bankruptcy Law has adopted the Modified Universality Principle, thus, a foreign bankruptcy is effective, in most cases, to property in Korea)
A Supreme Court case (2000 DA 64359) decided in April of this year clarifies Article 3 Clause 2 of the Bankruptcy Act. In the case, the debtor company owned an international trademark: “Paolo Gucci.” The debtor filed for bankruptcy in a New York court. The company declared the trademark as one of the company assets. What complicates the matter even more is that the company declared their worldwide trademark as company assets, not only the U.S. declared value, but the worldwide value – yes, including, value calculated based on in Korea.
The bankruptcy trustee sold the international rights to the “Paolo Gucci” name to an auction bidder. The bidder-plaintiff asserted his rights to the name not only in the U.S., but in Korea. The bidder-plaintiff asserted in a Korean court that it should also own the rights in Korea.
Now the problem, the Korean trademark was owned, clearly prior to the bankruptcy, by a Korean- company that asserted that the foreign bankruptcy holding is not enforceable in Korea because this Article 3 Clause 2 of the Bankruptcy Act.
The Supreme Court disagreed with the Korean company on this aspect of Korean Bankruptcy Law. The Court held that even though Article 3 Clause 2 declares that “bankruptcy which is declared in a foreign country, shall be ineffective to the property in Korea” the plaintiff is the owner of the Korean trademark as well.
Simply, the Court created a large exception to the broad language of Article 3 Clause 2, by holding that a foreign bankruptcy holding is not valid in of itself, but the Court will respect foreign judgments and the rights of trustees in bankruptcy actions to sell the international rights to trademarks, trade names, and patents. The realities in the world today are that rights to many assets are worldwide assets and to say an asset is only situated in Korea makes little sense in the worldwide marketplace. (Note: Again, note this exception was the Court realizing and flaw and utilizing its power to fix a perceived whole in law)
So to answer your question, the foreign judgment probably will not be effective in Korea, but if the assets have a tinge of cross-boarder interconnectivity, with the same asset in a foreign jurisdiction, you may be able to assert an ownership right to the property.
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