SOUTH KOREA Law and Practice Contributed by: Hyeon Kang, Tae Kyoon Kim, Seungil Hong and Sung-Ho Moon, Bae, Kim & Lee LLC
will have to be repaid in accordance with the terms of the rehabilitation plan approved by the court. Korea is a race jurisdiction, and therefore, prior - ity of any competing lender’s security interest over the real estate is determined in the order of registration of security. If the foreign lender is a secured lender, no additional step needs to be taken to secure priority over any lower-ranked security holder or unsecured lender. It usually takes approximately six to twelve months to enforce and realise real property security, although the actual time may vary for each case. The government has not introduced any restric - tions on the enforcement of collateral in real estate lending due to the COVID-19 situation, but it has required lenders to take steps to extend the maturity of loans made to small to medium- sized enterprises and small business owners. In case of a borrower default, lenders often pursue a loan restructuring or forbearance arrangement rather than taking immediate acceleration and foreclosure action. However, lenders are not particularly reluctant to exercise their foreclosure rights if there is little indication of the borrower’s financial status improving enough to pay out the loans within a reasonable timeframe. 3.7 Subordinating Existing Debt to Newly Created Debt Existing secured debt may become subordinated to newly created debt only if all existing lenders agree to subordinate their debt. In such cases, the existing security must also be subordinated to the new loan, and the security must be newly registered in the order of priority. Registration of security is required to have a perfected right to the security (as in the case of mortgages).
According to the Debtor Rehabilitation and Bank - ruptcy Act (DRBA), if a new loan is advanced to a debtor subject to rehabilitation proceedings that have already commenced, such new loan is granted a preferential right of repayment in priority to pre-rehabilitation claims and secured rehabilitation claims. 3.8 Lenders’ Liability Under Environmental Laws A lender may not be held liable for environmen- tal liabilities caused by encumbered real estate unless it acquires the property through a foreclo - sure sale (or by otherwise enforcing its security). In such cases, the lender’s environmental liabili - ties will be as described in 2.7 Soil Pollution or Environmental Contamination . Thus, a lender holding security over real estate will not be liable under environmental laws. 3.9 Effects of a Borrower Becoming Insolvent Under the Civil Code, security interests know - ingly created by a borrower against the propri - etary interest of existing lenders may be made void by the courts upon the request of such existing lenders, if: • the borrower is insolvent or becomes insol - vent as a result of the creation of such secu - rity interests; and • the borrower’s assets decrease as a result of the same. Additionally, granting security interests in favour of only some of the existing lenders without receiving any new financing (or new lending arrangements) may constitute fraudulent trans - fer. Under the DRBA, a security interest created by a borrower in rehabilitation or bankruptcy may
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