SOUTH KOREA Law and Practice Contributed by: Hyeon Kang, Tae Kyoon Kim, Seungil Hong and Sung-Ho Moon, Bae, Kim & Lee LLC
relevant industry by granting security to such debtor without receiving reasonable compen - sation. Furthermore, there is a requirement to file a pub - lic notice of acquisition of security interest if the security provider and the debtor belong to the category of “companies subject to restriction on mutual contribution” under the MRFTA, and the value of the security to be granted exceeds a certain threshold. 3.6 Formalities When a Borrower Is in Default The enforcement of security over real estate against a defaulting borrower may be made in accordance with the terms of the security docu - ment, and there is no other legal formality that must be complied with or legal impediment to enforcing the security if the requisite foreign exchange report was made in respect of the security document and the loan agreement. However, if a rehabilitation proceeding under Korean insolvency law is commenced in respect of a security provider, enforcement of security will generally be prohibited, the lender will be required to report its claim and security and 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 6–12 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 was requiring 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 pursued a loan restructuring or forbear - ance arrangement rather than taking immediate acceleration and foreclosure action. However, this is no longer the case. 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.
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