SOUTH KOREA Law and Practice Contributed by: Ie Hwan Yoo, Hang Jin Chang and Da Eun Jung, Kim & Chang
Mortgage This must be registered with the appropriate court registry. Registration and education taxes must be paid and national housing bonds pur- chased for a mortgage to be registered. Taxes and expenses depend on the maximum mort- gage amount. A mortgage is automatically perfected on creation, and no further action is required for perfection. One particular form of mortgage used for taking a blanket security interest over a factory is “factory mortgage” . This creates a security interest in the factory′s under- lying land, facilities, fixtures and equipment. Recording a factory mortgage with the court registry requires the attachment of a schedule, which lists specific items covered by the factory mortgage. Collateral trust A security interest over real property can be created using a collateral trust (often favoured by the lenders). The property owner as trustor enters into a real property collateral agreement with a trustee, and the trustee issues a benefi- ciary certificate to the lender as the primary ben- eficiary. Title to the property is then transferred to the trustee. On the occurrence of an event of default under the loan agreement, the lender can instruct the trustee to dispose of the property. The key difference between a collateral trust and a mortgage is the method under which the collateral property can be disposed of. In a col- lateral trust, the trustee can sell the property through a private sale. In a mortgage, however, the disposal of the property can only be carried out under a court-administered auction process, which can take a significant amount of time, and may or may not result in the optimal amount of sale proceeds.
An advantage of the collateral trust arrange- ment is that it is easier to administer, as the sale proceeds are distributed in accordance with the waterfall set out in the trust agreement. However, the kun-mortgage has the advantage that the purchaser can take over the property from the foreclosure auction, free of all liens (subject to exceptions of the super-senior liens). Movable Assets Security interests over movable assets can be created using either a pledge or yangdo dambo. To create yangdo dambo over movable assets (that are not registrable property), the parties (ie, the assignor and the assignee) must agree to: • transfer title of the movable assets to the assignee; and • allow the assignor to maintain physical pos- session and continued use of the inventory while holding it “in trust” for the assignee (which constitutes the delivery of the movable assets to the assignee under Article 189 of the Korean Civil Code). 5.2 Form Requirements There are no particular form requirements regarding security, as long as the requirements for the creation and perfection of security under Korean law are complied with. 5.3 Registration Process For the registration process of a mortgage, see 5.1 Types of Security Commonly Used . 5.4 Restrictions on Upstream Security An upstream security raises a potential breach- of-fiduciary-duty issue under Korean law for the security provider’s directors. Korean court prec- edents generally do not recognise a justifiable corporate benefit where a Korean subsidiary provides an upstream security to its parent com-
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