CHAPTER II COMMENCEMENT OF COMPOSITION

Article 12 (Requirement of Commencement of Composition)

(1) In cases where there exists a fact as the ground of bankruptcy or threatens to occur such fact, a debtor may file an application for commencement of composition; provided, that a director or an equivalent person, in cases of a juristic person, shall consent thereto.

(2) A commencement of composition shall not be applied on inherited property.

Article 13 (Application for Commencement of Composition)

(1) In applying for commencement of composition, the method of repayment, or in furnishing security, the security and any other conditions of composition shall be reported to the court.

(2) The applicant for composition shall produce a detailed statement, which can show the situation of the assets, and a list of creditors and debtors simultaneously with the application. In case where the production is not made simultaneously with the application, these shall be produced without delay thereafter.

(3) The applicant for composition may change composition conditions with the permission of the court.

(4) In deciding permission and non-permission of Paragraph (3) above, the court shall listen to the opinion of a liquidation commissioner under the provision of Article 21 and consider the will of an interested party such as a composition creditor, etc..

(5) The court may cause to furnish personal guarantee and mortgage property (including security over corporate stock) on composition conditions, listening to the opinion of the administrative committee and the council of creditors pursuant to Article 49-2.

Article 14 (Prepayment of Expenses)

Where the commencement of composition is applied, the expenses of composition, which the court finds as reasonable, shall be paid in advance.

Article 15 (Commencement of Composition and Non-permission of Application for Bankruptcy)

After the commencement of composition has been decided, an application for bankruptcy may not be filed.

Article 16 (Adjudication of Bankruptcy and Non-permission of Application for Composition)

After the bankruptcy has been adjudicated, an application for a commencement of composition may not be filed.

Article 17 (Suspension of Bankruptcy Proceeding)

If an application for a commencement of composition and a bankruptcy are made, the bankruptcy proceedings shall be suspended.

Article 18 (Cases where Application shall be Dismissed)

In cases falling under any of the following subparagraphs, the court shall dismiss the application for the commencement of composition:

  1. If the application is made for the avoidance of bankruptcy;
  2. If the whereabouts of the applicant for composition is unknown;
  3. If any conduct falling under the fraud in insolvency is deemed to have been made;
  4. If the condition of composition is contrary to any Act; or
  5. If the condition of composition is contrary to the general interests of composition creditors.

Article 19 (Cases where Application may be Dismissed)

In cases falling under any of the following subparagraphs, the court may dismiss the application for the commencement of composition:

  1. If the expenses of composition procedure are not paid in advance;
  2. If the composition has been rejected in the meeting of creditors;
  3. If an application for the commencement of composition or a tender of composition has been withdrawn;
  4. If a disapproval of composition has been decided; or
  5. If a cancellation of composition has been decided.

Article 19-2 (Exceptions to Dismissal of Application of Stock Company)

In cases where the application for the commencement of composition of a stock company falls under any of the following subparagraphs, the court may dismiss such application; provided, that in case falling under the subparagraph 2, the court shall listen to the opinion of the administrative committee and the council of creditors:

  1. If the cause of the financial bankruptcy of a stock company, which is a debtor, arises from the misappropriation or secretion of company property, or the intentional insolvent management, by a director, an equivalent person, or an executive manager.
  2. If it is unreasonable to follow the composition procedure, taking into consideration of general circumstances such as where the scale of asset or indebtedness of a debtor is large, or the number of an interested party, such as creditors, is large, etc.. [This Article Newly Inserted by Act No. 5518, Feb. 24, 1998]

Article 20 (Preservative Measure and Preservative Administrator)

(1) The court may order provisional attachment, provisional disposition or any necessary preservative measure on the debtor's property upon the request of any interested person or ex officio before the decision of the commencement of composition.

(2) The court may, if the court deems it necessary for the measures under the provision of Paragraph (1) above, appoint a preservative administrator, listening to the opinion of the administrative committee.

(3) The court may modify or cancel the measures under the provisions of the preceding Paragraphs (1) and (2), listening to the opinion of the administrative committee.

(4) The adjudication under the provisions of the preceding Paragraphs (1) through (3) shall be made in the form of decision. An immediate appeal may be filed against this decision.

(5) The immediate appeal under the provision of Paragraph (4) above shall not have the effect of the suspension of execution.

(6) In cases where the measures under the preceding Paragraphs (1) through (3) has been taken, the court shall make a request of a registration to a register office which has jurisdiction over the objects of the rights to be disposed or to a register office governing the location of the main office (in case the main office is located outside Korea, to a register office governing the location of the principal office of business in Korea), ex officio without delay.

(7) The provision of Paragraph (6) above shall apply mutatis mutandis to what is recorded as the assets of a debtor.

(8) In making a request of registrations or records under the provisions of the preceding Paragraph (6) and (7), a transcript or abridged copy of the determination note shall be attached.

(9) The applicant for composition shall not withdraw the application for commencement of composition without the permission of the court after the measures under Paragraph (1) above is taken.

Article 21 (Appointment of Liquidation Commissioner)

(1) The court shall appoint a liquidation commissioner to make any necessary investigations into the debtor's assets, books, and composition conditions and to produce his written opinion of whether or not the composition should be commenced, listening to the opinion of the administrative committee, within a definite period of time.

(2) The liquidation commissioner may appoint an expert witness at his own discretion.

(3) The period for the investigation and production of the written opinion by a liquidation commissioner shall not exceed two (2) months after the day appointed; provided, that in unavoidable circumstances such as the resignation of a liquidation commissioner the period may be extended within the extent of one (1) month with the permission of the court.

Article 22 (Obligation Not to Interfere in Investigation)

The applicant for composition shall not refuse the investigation under the provisions of Paragraph (1) of the preceding Article.

Article 23 (Duty of Explanation)

Article 143 of the Bankruptcy Act shall apply mutatis mutandis to a claim of liquidation commissioner in relation to a composition.

Article 24 (Resignation of Liquidation Commissioner)

The court may dismiss the liquidation commissioner ex officio or upon request of any interested person in cases where an important reason exists. In this case, the court shall examine the liquidation commissioner.

Article 25 (Application of Provisions over Administrator-in-Bankruptcy, etc.)

Articles 149 through 151, 154 through 156, 159 and 171 of the Bankruptcy Act shall apply mutatis mutandis to the liquidation commissioner.

Article 26 (Notice of Commencement of Composition)

In a written decision of the commencement of composition, the date of decision shall be stated.

Article 26-2 (Time for Decision of Commencement)

The decision of whether or not the composition should be commenced shall be made within three (3) months from the date of application; provided, that the court may extend the period within the extent of one (1) month if there occurs unavoidable causes. [This Article Newly Inserted by Act No. 5518, Feb. 24, 1998]

Article 27 (Matters to be Determined Simultaneously)

(1) The court shall appoint an administrator and decide the following particulars simultaneously with the decision of the commencement of composition, listening to the opinion of the administrative committee and the council of creditors under the provision of Article 49-2.

  1. The period for reporting credits; provided, that the period shall be not less than two weeks and not more than two months from the date of decision; and
  2. The fixed date for the meeting of creditors; provided, that a period of not less than one week and not more than one month shall be between the fixed date and the last day of the period for reporting credits.

(2) The court may cause a liquidation commissioner to serve as an administrator concurrently, taking into the consideration of general circumstances such as the scale and content of the business of a debtor, the scale of assets and indebtedness, the degree of the difficulty of the investigation, etc..

(3) An immediate appeal may be made against the decision of the commencement of composition.

Article 28 (Public Notification and Service of Composition Commencement)

(1) If the court decides upon the commencement of composition, it shall notify publicly the following particulars:

  1. The judgement of the commencement of composition;
  2. Name and address of the administrator; and
  3. The period for reporting credits and the fixed date for the meeting of creditors.

(2) On the verified creditors, the applicant for composition, the administrator, and the liquidation commissioner, the written instrument on which matters as provided in the preceding paragraph, condition of composition and gist of opinions of liquidation commissioner are stated, shall be served.

(3) The two preceding paragraphs shall apply mutatis mutandis to cases where matters as provided in Paragraph (1) 2 and 3 are modified.

Article 29 (Public Notification of Cancellation of Composition Commencement)

(1) If the court decides to cancel the decision of commencement of composition, the court shall notify publicly the judgement at once.

(2) This Article shall apply mutatis mutandis to cases falling under the provisions of the preceding Article Paragraph (2).

Article 30 (Keeping of Document)

The documents of application for commencement of composition, the investigation documents and written opinion of liquidation commissioner under the provisions of Article 21 shall be kept in the court for perusal by interested persons.

Article 31 (Restriction against Conduct of Debtor)

(1) From the time of application for commencement of composition to the time of decision, a debtor shall not carry out any conduct beyond the ordinary course of business.

(2) In cases where a preservative administrator is appointed after the application for the commencement of composition, even the conduct within the ordinary course of business may not be made by a debtor if the preservative administrator raises his or her objection thereto.

(3) With regard to the obligations falling under any of the following particulars which incur after the application for the commencement of the composition, a debtor may perform the obligations even beyond the ordinary course of business, if a preservative administrator agrees thereto.

  1. Obligations incurred from the supply by the other party due to a continuous contract for the supply;
  2. Obligations incurred from the conduct indispensable to the borrowing of funds, purchase of materials, and continuance of other business of a debtor; or
  3. Other expenses to be defrayed unavoidably for the benefit of a debtor.

(4) If a preservative administrator is not appointed, a debtor may perform the conduct of the preceding Paragraph (3) with the permission of the court.

(5) A preservative administrator may request a report to a debtor, at any time, regarding the income and expenditure of money, and other duties over a property of a debtor, and may request an investigation or correction, or take other proper actions, if it deems to be necessary.

Article 32 (Effect of Commencement of Composition)

(1) A commencement of composition shall not affect the rights of a debtor on administration and disposition of his own assets; provided, that any conduct beyond the ordinary course of business may not be made without the consent of the administrator.

(2) Though it is conduct within the ordinary course of business, a debtor shall not conduct it in case of dissent of administrator.

(3) If the administrator is to assent to the important conduct pursuant to the provisions of Paragraph (1) above, he shall listen to the opinion of the liquidation commissioner; provided, that exceptions shall be made in the case of Article 27 (2).

Article 33 (Denying Power of Composition Creditor)

The composition creditor may deny any conduct against Article 31 or Paragraphs (1) and (2) of the preceding Article; provided, that the other party shall have known the fact at the time of that conduct.

Article 34 (Payment and Receipt of Money by Administrator)

The administrator may request to pay and receive money by his own efforts, to a debtor. (??)

Article 35 (Aid Allowance)

The administrator may determine the sum of the aid allowance to be paid to the debtor and the person supported by him with permission of the court.

Article 36 (Report and Inspection of Property)

(1) The administrator may request a report to a debtor, at any time, regarding the income and expenditure of money, and other duties over a property of a debtor, and may request an investigation or correction of the situation of the property, or take other proper actions, if it deems to be necessary.

(2) The liquidation commissioner may request a report on the debtor's property from the administrator at any time.

Article 37 (Duty of Explanation)

Article 143 of the Bankruptcy Act shall apply mutatis mutandis to cases where the administrator or the meeting of creditors makes a demand for composition.

Article 38 (Report of Accounts)

If the duties of an administrator are terminated, the administrator or the successor shall report the accounts to the court without delay.

Article 39 (Applicable Provisions)

Article 24 of this Act and Articles 148 through 151, 153 through 156, and 159 of the Bankruptcy Act shall apply mutatis mutandis to the administrator.

Article 40 (Prohibition, Suspension of Preservative Measure, Compulsory Execution)

(1) During the composition procedure, compulsory execution, provisional attachment, or provisional disposition on the debtor's property shall not be made in relation to composition credits.

(2) The compulsory execution, provisional attachment, and provisional disposition on the debtor's property in relation to composition credits made prior to the commencement of composition shall be suspended during the composition procedure.

Article 41 (Interruption of Prescription)

The intervention in the composition procedure shall be considered a judicial claim on interruption of prescription.