SOUTH KOREA Law and Practice Contributed by: Ie Hwan Yoo, Hang Jin Chang and Da Eun Jung, Kim & Chang
7.2 Claw-Back Risk With respect to claw-back risk, under Korean insolvency law, payments or other acts (such as granting security interest or sale of assets) performed by the borrower may be avoided by the insolvency official after the commencement of insolvency proceedings if, in general, they fall into one of the following four categories: • malicious payments or acts with the actual intent to harm the creditors; • any act detrimental to the creditors after suspension of payment or filing for insolvency proceedings; • a payment for an obligation or granting of a security interest without the pre-existing obligation to do so if such an act was made after, or within 60 days before, suspension of payment or filing for insolvency proceedings (the suspect period will be extended from 60 days to one year if a specially related party is the counterparty of that act); and • any gratuitous act performed after, or within six months before, the suspension of pay- ment or filing for insolvency proceedings (that six-month period will be extended to one year if a specially related party is the counterparty of that act). In the context of acquisition finance, the appli- cation of claw-back rules is not generally seen, but the above principles may apply, depending on facts and circumstances.
guarantee is not limited to a specific transaction), the Civil Code of Korea requires the guarantee to set a maximum guarantee amount, so that the guarantor is aware of the amount of liability it is guaranteeing. 6.2 Restrictions Similar to the provision of upstream security, an upstream guarantee raises a potential breach- of-fiduciary-duty issue under Korean law for the guarantor’s directors. Korean court precedents generally do not recognise a justifiable corpo- rate benefit if a Korean subsidiary provides an upstream guarantee to its parent company. Any benefit that the entire company group receives from the upstream guarantee is treated sepa- rately from the corporate benefit given to the Korean subsidiary providing the guarantee. However, whether the Korean subsidiary in fact enjoys a corporate benefit by providing the guar- antee is to be determined by the directors of the Korean subsidiary, taking into account the circumstances in their entirety. This is a factual analysis, and a board resolution simply acknowl- edging that the guarantee provides a corporate benefit would not automatically prove the exist- ence of a justifiable corporate benefit to the Korean guarantor. 6.3 Requirement for Guarantee Fees There is no requirement for guarantee fees, although paying guarantee fees would support the argument that there is a corporate benefit to the guarantor for providing the guarantee. 7. Lender Liability 7.1 Equitable Subordination Rules There is no specific provision for or concept of equitable subordination rules in Korea.
8. Tax Issues 8.1 Stamp Taxes
Under Korean law, a stamp tax of KRW350,000 would apply to any loan agreement executed in Korea under which a lender agrees to lend KRW1 billion (approximately USD822,000) or more.
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