SOUTH KOREA Law and Practice Contributed by: Hyeon Kang, Tae Kyoon Kim, Seungil Hong and Sung-Ho Moon, Bae, Kim & Lee LLC
estate as security, created by a mortgage agree - ment between the parties. Another type of secu - rity typically used is a security trust, under which the real estate investor entrusts the real estate to a trustee and the lender becomes a beneficiary. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders Any foreign lender who intends to acquire a security interest over real estate located in Korea is required to file in advance a report with a for - eign exchange bank in Korea under the Foreign Exchange Transaction Regulations. Further - more, if the land in question is located within a district subject to prior approval by MOLIT under the NLPUA, and if the foreign lender intends to acquire a security interest that would grant them the right to use the land for the purpose of own - ing buildings and structures on such land, addi - tional approval must be obtained from the local government with jurisdiction over the land. A foreign lender is generally not subject to any restrictions on transferring the proceeds of a loan repayment to its offshore account as long as the government authorisation required under 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 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 nega - tive effect on the market of unfairly enhanc - ing the competitiveness of the debtor in the
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