SOUTH KOREA Law and Practice Contributed by: Ie Hwan Yoo, Hang Jin Chang and Da Eun Jung, Kim & Chang
5.7 General Principles of Enforcement Due to restrictions on providing an upstream security, as previously discussed, the shares of the acquired company being held by the bor- rower/purchaser is the most common security provided to lenders. Under Korean law, the pledge over the Korean securities may be enforced by any of the fol- lowing methods. However, judicial foreclosure is the only method permissible under Korean law, unless there is a separate agreement between the pledgor (ie, the borrower/purchaser) and the pledgee (ie, the lender) specifying the other two methods: • judicial foreclosure – an auction or a simpli- fied judicial sale of the pledged shares; • private sale – sale of the pledged shares while the title to the pledged shares remains with the pledgor; and • acquisition – acquiring title to the pledged shares by a pledgee, either for purposes of disposition or for settlement on the basis of the reasonable value of the pledged shares. Upon the pledgor’s default, a pledgee shall be able to enforce the pledge over the pledged shares by opting for any of the methods listed above.
pany. Any benefit that the entire company group receives from the upstream security is treated separately from the corporate benefit given to the Korean subsidiary providing the security. However, it is up to the directors of the Korean subsidiary to determine whether the Korean subsidiary, in fact, enjoys a corporate benefit by providing the security, after taking into account the circumstances in their entirety. This is a factual analysis, and a board resolution simply acknowledging that the security provides a cor- porate benefit would not automatically prove the existence of a justifiable corporate benefit to the Korean subsidiary providing the security. 5.5 Financial Assistance There is no explicit financial assistance rule in Korea. However, all actions taken by the direc- tors of the company providing financial assis- tance must comply with the relevant fiduciary duty restrictions. Under Korean law, the directors can be subject to civil and criminal liability for breach of fiduciary duty if they act with the intent to benefit a particular third party. In this context, a third party includes the share- holders of the company, since the prevailing view is that the fiduciary duty of directors runs to the company itself rather than to the share- holders of the company. Therefore, the direc- tors of the target that support the provision of guarantees (or provide the assets of the target as collateral) with respect to the obligations of the target’s parent could potentially be subject to both civil and criminal liability. 5.6 Other Restrictions There are no other known restrictions besides those set forth in the previous sections.
6. Guarantees 6.1 Types of Guarantees
Typically, guarantees will be in the form of a demand guarantee, whereby the beneficiary may seek the guarantor’s performance by writ- ten demand and without first having to pursue the borrower. Where the guarantee is governed by Korean law and comprehensively guarantees a debtor’s obligation to certain creditors (ie, the
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