SOUTH KOREA Law and Practice Contributed by: Hyeon Kang, Tae Kyoon Kim, Seungil Hong and Sung-Ho Moon, Bae, Kim & Lee LLC
the Foreign Exchange Transaction Regulations was duly obtained in respect of the security agreement and the loan agreement at the time of signing or closing the financing transaction. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Security over real estate (ie, mortgages) must be registered with the competent court registry office. In the case of mortgages, registration tax (0.2% of the maximum secured debt amount) and local education tax (20% of the registration tax), as well as certain other fees and duties such as charges for the purchase of national housing bonds and stamp duty, must be paid prior to filing the application for registration of the mort - gage. 3.5 Legal Requirements Before an Entity Can Give Valid Security Under Korean law, if an entity (the security pro - vider) grants security over its assets to secure the debt of another person/entity (the debtor) without adequate consideration from the debt - or, this may constitute criminal and civil breach of fiduciary duty by the directors of the secu - rity provider. In other words, if the security pro - vider’s directors fail to procure adequate con - sideration when they approve the provision of collateral, the directors will be deemed to have caused economic harm to the security provider in breach of their fiduciary duty. In order to be deemed “adequate” in this context, the consid - eration must be equivalent to the risk exposure of the security provider (ie, forfeiture of its assets should the debtor default on the loans). In addition, if the debtor is a specially related person/entity of the security provider (ie, its major shareholder), the provision of security by the security provider may be subject to certain
additional restrictions or requirements under Korean law, including the following: • approval by a resolution of its board of direc - tors with the affirmative votes of two-thirds or more of the directors, in accordance with the Korean Commercial Code (KCC); • if the security provider is a listed company in Korea, the provision of security to a specially related person/entity must fall under a specifi - cally permitted exception under the KCC; and • it may not constitute “unfair trading” under the Monopoly Regulation and Fair Trade Act of Korea (MRFTA), ie, there will be no negative effect on the market by unfairly enhancing the competitiveness of the debtor in the relevant industry by granting security to such debtor without receiving reasonable compensation. Furthermore, there is a requirement to file a pub - lic notice of acquisition of security interest if the security provider and the debtor belong to the category of “companies subject to restriction on mutual contribution” under the MRFTA, and the value of the security to be granted exceeds a certain threshold. 3.6 Formalities When a Borrower Is in Default The enforcement of security over real estate against a defaulting borrower may be made in accordance with the terms of the security docu - ment, and there is no other legal formality that must be complied with or legal impediment to enforcing the security if the requisite foreign exchange report was made in respect of the security document and the loan agreement. However, if a rehabilitation proceeding under Korean insolvency law is commenced in respect of a security provider, enforcement of security will generally be prohibited, and the lender will be required to report its claim and security and
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