5/30/2016

Termination of a Franchise Agreement in Korea: Korean Franchise Law Basics

The Fair Franchising Transactions Act of Korea ("Franchise Act") and its Enforcement/Presidential Decree, the Commercial Law of Korea and the Korea Franchise Promotion Act are the main bodies of law regulating the relationship between franchisors and franchisees in Korea.  The law is enforced by the Korea Fair Trade Commission and the Korean courts.
terminating a franchise in korea
Franchise Termination in Korea

Korea's Franchise Act, facially, limits the power of the franchisor to terminate a franchise.  The Franchise Act notes that:
"Article 14 of the Franchise Act ok Korea
(1) Any franchisor that intends to terminate a franchise agreement shall clearly note the franchisee's breach of the agreement during a grace period of not less than two months and shall give written notice at least twice that it will terminate the agreement unless such breach is corrected during the given period: Provided, that the foregoing shall not apply to cases specified by Presidential Decree . . ..
(2) The termination of a franchise agreement without complying with the procedure under paragraph (1) shall have no effect."
The major published disputes, with regard to Article 14 of the Franchise Act of Korea, relates to the seriousness of the alleged breach alleged by the franchisor, whether the breach was corrected and the intent of the franchisor in terminating.  Because of many perceived abuses by franchisors, the Fair Trade Commission of Korea has been active in fining franchisors for these perceived abuses and the courts have deemed some terminations as ineffective under Article 14(2) of the Franchise Act.

Article 15 of the Presidential Decree/Enforcement Decree to the Franchise Act stipulates certain exceptions to the "grace period/cure period" noted in Article 14 of the Franchise Act of Korea.

The exceptions include:

  1. Franchisee Bankruptcy, insolvency, or corporate reorganization;
  2. Franchisee bounced promissory note;
  3. Franchisee's Force Majeure;
  4. Franchisor business is damaged because of dissemination of malicious lies or the leak of trade secrets by the franchisee;
  5. Franchisee's violation of law in relation to operation of the franchised business that is not rectified;
  6. Franchisee's violation of law in relation to operation of the franchised business that is impossible to rectify;
  7. Repeated violation of legal franchisor demands by the franchisee;
  8. Franchisee operates the franchise in a manner that gives rise to an imminent fear to public health or safety;
  9. Franchisee abandons the franchise business; and
  10. Franchisee is convicted of a crime related to operation of the franchise business. 

Terminating a Franchise is not easy in Korea.  Few attorneys, in Korea, are adept at Korea's franchising law and even fewer lawyers understand the business-side of franchising.  Franchising is a true specialty in Korea that few attorneys know much about.   Ger a Korean franchise lawyer that is business savvy prior to even consider terminating a franchise in Korea.  This lawyer, because of Korean realities, should be working with an experienced retired senior judge, since many of these cases end up in court.  The ubiquitous firms are not always the answer and not, always, the best at resolving matters in a proactive and non-conflicted manner.

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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Sean's profile may be found at: Sean C. Hayes

Franchisor Obligation in Korea to File Annual Report to FTC: Korean Franchise Law Updates

Korea's Franchise Law imposes an obligation to report to the Fair Trade Commission of Korea, yearly, specific information relating to your franchise business worldwide.

A franchisor's disclosure document may be de-registered if this Yearly Franchise Report is not accepted by the Korean Fair Trade Commission within 120 days of the closing of the year.

The Yearly Franchise Report, in Korea, is intended to notify franchisees and prospective franchisees of changes in the operations of the franchisor.

Make sure your franchise attorney, in Korea, has informed you of the requirement and the law.

Other articles on Franchise Law that may be of interest:
Sean Hayes may be contacted at: SeanHayes@ipglegal.com. Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

5/25/2016

Fleeing Korea while under Police/Prosecutor Investigation: International Hold in Korea

We have, recently, learned that even if the Korean prosecution/police have not requested that an accused be placed on an international hold, some records of police investigations, indictments and proposed fines and sentences by the prosecution/police are being reported to the Korean Immigration Service.

An international hold, in Korea, is an official procedure that flags passports and fingerprints and prevents one under this international hold from departing Korea prior to the lifting of the international hold.

Even if you are not under an official international hold, Korea Immigration may refuse your departure based on information from data being shared between the Police, Prosecution, National Tax Service and other Korean government agencies.  Please note that the Korea Immigration is a branch of the Ministry of Justice. The Ministry of Justice is in charge of the majority of prosecutions in Korea. 

Thus, in short, someone under investigation in Korea may be stopped at the airport even if not under an official international hold.  

Thus after arrest, fleeing to the airport may not be advisable.  If you are perceived to being fleeing Korea, things may get much worse. 

Other articles on Korean criminal law and criminal attorneys that may be of interest:
Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Challenging a Korean Immigration Deportation/Exit Order in Korea

Being convicted of a crime in Korea, may lead to deportation.  If you are issued a deportation/exit order from the Korean Immigration Service, you do have avenues to reverse this deportation order within the courts.

The Courts of Korea have jurisdiction to review all exit/deportation orders issued by Korean Immigration.  Korean courts will look to whether:
A.  The order complies with the law; and
B.  Whether Immigration has abused its discretion.

Under law, Immigration Services of Korea has broad power in the issuing of deportation and exit orders.  Law imposes restrictions on actions by Immigration under certain visa categories.  If Immigration complied with law, an Immigration's order may be challenged under Korea's "abuse of discretion" jurisprudence.

The Courts have noted that any government action must not do more harm to the life of an individual than it does good to the public.  Many Immigration cases at the Administrative Court of Korea invalidated deportation orders based on this abuse of discretion test.

Factors that a Court may consider in determining that it is acceptable to invalidate the Deportation/Exit Order from Immigration are:
1.  If the complainant is married to a Korean;
2.  The background of the complainant;
3.  The motivation of Immigration in deporting;
4.  The seriousness of the act justified by Immigration in deporting;
5.  The harm that will be done to the complainant and his or her family by deporting the individual;
6.  The contributions made by the complainant to Korea; and
7.  Character references.
A complainant has a severe uphill battle if he chooses to challenge a deportation order without the utilization of an experienced attorney.  We advise hiring an attorney as early as possible.  If you know you may be denied a visa, it is advisable to file a visa extension with the assistance of an attorney.   sometimes an attorney can avoid court via assisting in the filing of the visa applications and pleading the issue to Immigration.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

Sean's profile may be found at: Sean C. Hayes

5/20/2016

Korean M & A Due Diligence Checklist: Mergers & Acquisitions in Korea

This Korean Merger & Acquisition Due Diligence Checklist is not a substitute for retaining an attorney to assist with your M & A.  Please, only, use this checklist as an initial guide and to insure that your attorney is checking off all of the boxes.  

Korean companies often are, often, very poor at keeping accurate records that reflect a rational reality.  Thus you must know where to find the red flags.  This skills comes with experience in Korea. We do work, also, in China. The flags are found in different places in Korea, than, in China and in the West.

M & A Due Diligence Checklist
  • Company History
    • Company History/Background
    • Founder, Family & Key Individuals in Company
    • Historical Profitability
    • Credit Rating
    • Primary Customers, Suppliers & Vendors
    • Reason for Sale or Merger
    • Stinky Fish & Stinky People
    • Old Hats
  • Financials & Shareholder Distributions
    • Audited Financial Statements
    • Tax Returns, Tax Certificates, Tax Filings & VAT Receipts etc.
    • Government Filings, Government Notices and Tax Office Communications
    • Local Taxes & Communications
    • 4 Insurances
    • Cash Flow, Current Financials & Year End Statements
    • Shareholder Distributions
    • Interested Transactions
  • Company Formation Documents
    • Business Licenses, Tax License & Commercial Register
    • Articles/Constitution, By-laws, Amendments etc.
    • Shareholder Agreements/Joint Venture Agreements
    • Government Approvals & Certificates
    • Interested Directors, Officers, Share Holdings
    • Representative Director & Directors Acceptance Documents
    • Formation Docs
    • Insurance Contracts
    • Seal Certificate
  • Assets & Receivables
    • Receivables List & Records
    • Real Property List & Records
    • Movables List & Records
    • IP (trademark, patents, copyrights, licenses etc.)
    • Registration documents for IP
  • Liabilities & Lawsuits
    • Lawsuits & Administrative Actions
    • Government Liabilities
    • Loans & Guarantees
    • Interested Transactions
    • Licenses
    • Contingents
    • Liabilities to Shareholders, Employees, Family & Directors
  •  Customers & Relationships
    • Major Customers
    • Agreements & POAs
    • Customer & Vendor Relationship Issues
    • Customer Relationship with Key Employees Leaving
  • Employee/Directors
    • Employee List
    • Job Specs
    • Employment Contracts
    • Government Obligations
    • Severance Obligations
    • Director Contracts
    • Former Director List
    • Employees Terminated in Last Year
    • Independent Contractor Contracts
    • Employment Related Tax Obligations
    • Labor Union Representatives/Union
    • Disciplinary Dismissals
  • Real Property
    • Title, Lease, Property Records
    • Adjoining Landowners
    • Tax Assessment
    • Mortgages, Liens & Encumbrances etc.
Please search for other articles we have written on Due Diligence and Mergers in Korea via the labels to the right.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. He is ranked, for Korea, as one of only two non-Korean attorneys as a Top Attorney by AsiaLaw.

5/19/2016

Director Liability Insurance in Korea: Follow the Oxy Reckitt Beckiser

A great lawyer is hard to find - a lawyer is too hard to lose.

Criminal defense lawyers in Korea

The best lawyers, in Korea, often don't work for the ubiquitous/"leading" law firms, because of Korean realities.  This is known by many Koreans and it is why Koreans shop around for the best lawyer for the specific case.

Too often, we see foreign defendants in criminal cases that choose to maintain the same "corporate" firm for criminal matters.  This is not always the best move and we can see in many of the most noteworthy cases that this is not, always, the rule.  Realize that you are hiring a lawyer - not a law firm.

Also, realize that a proactive, non-conflicted, aggressive and respected lawyer is essential for all criminal defense matters.  These lawyers are hard to find in Korea, especially when we consider that these lawyers, typically, need to be very senior retired judges to be effective.

When you find attorneys in Korea with these capabilities, they are worth their weight in gold - and often, also, charge their weight in gold.

Thus, Director Liability Insurance coverage is essential.  We recommend to all clients to obtain a policy of, at least, USD 400,000.  We have our more proactive clients obtain polices in many multiples of this number.

The policies, often, cover legal fees, lost work and incidental damages caused by criminal and civil actions taken against the director.

Other articles that may be of interest:



  • Signs that You Hired a Great Korean Defense Attorney
  • Criminal Punishment of Corporations for Actions of Employees
  • Misunderstanding of Suspension of Criminal Sentence in Korea 
  • Foreigners' Drug use in Korea
  • Criminal Lawyers in Korea

  • Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

    Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

    Sean's profile may be found at: Sean C. Hayes

    5/12/2016

    Enforcement of Sales Promotions by Franchisors under Korean Franchise Law

    Can an international franchisor force a local Korean franchise to cut the prices of a product via a sales event?

    This issue was addressed by the Korean Supreme Court in 2003Du7484.  In this Supreme Court of Korea case, a franchisor, among other things, mandated via the franchise agreement for a franchisee to hold sales events.  The franchise agreement did not specify the specific details of the sales events. The franchisor elected to utilize the clause in the franchise agreement to force the franchisee to initiate a sales event - the franchisee refused and, thus, the commencement of the dispute.

    The Supreme Court opined that:
    "A franchise business means a continuous business relationship in which a franchisor allows franchisees to use its own trademarks, service marks, trade names, signs, or any other business marks in selling goods (including raw materials and auxiliary materials) or services in conformity with certain quality standards or business methods, and supports, trains, and controls its franchisees in regards to their management, business activities. etc., and in which franchisees pay franchise fees to their franchisor in return for the use of business marks and the support and training provided for their management, business activities, etc. 
    A franchise business is a mutual dependent way of business between a franchisor and its franchisees. A franchise business has a common interest such as a protection of franchisees’ individual interest based on faith and a development a whole franchise system including franchisees. 
    A sales promotion event is for the development of a franchisee by promoting sales of a franchisee and thus franchise profit . . . while, also, increasing a franchisor’s profit by selling goods including raw materials and auxiliary materials to franchisees. 
    So both a franchisor and franchisee may receive a benefit from a sales promotion.  If the expenses are shared reasonably between a franchisor and franchisees for a sales promotion event in a franchise agreement, even if a franchisor did not have a prior consultation with a franchisee in implementing a sales promotion event, that article does not conform to a clause which is unreasonably unfavorable to customers provided in the ACT ON THE REGULATION OF TERMS AND CONDITIONS Article 6 Paragraph 2 item 1."
    The Act on the Regulation of Terms and Conditions of Korea Article 6 (2)(1) notes that: "Any of the following clauses in terms and conditions shall be presumed to be unfair: (1) A clause which is unreasonably unfavorable to customers."

    The Franchise Law of Korea mandates, numerous, like obligations on franchisors including:

    "Article 5 (Obligations of Franchisers)
    Each franchiser shall observe the following obligations: 
    1. Devising business plans for the success of franchise business; 
    2. Continuing efforts for the quality management of commodities or services and the development of sales techniques; 
    3. Providing franchisees with facilities for their stores and supplying them with commodities or services at reasonable prices and costs;
    4. Providing franchisees and their employees with education and training; 
    5. Rendering constant advice and assistance to franchisees with respect to their management and business activities; 
    6. Refraining from establishing any direct retail store within the business territory of a franchisee or establishing a franchise store of any type of business similar to that of a franchisee;  and
    7. Making efforts to settle any dispute arising in connection with a franchisee through dialog or negotiations.
    The Franchise Law of Korea, also, imposes general obligations on franchisees including the following:
    Article 6 (Obligations of Franchisees) 
    Each franchisee shall observe the following obligations: 
    1. Making efforts to maintain the integrity of franchise business and the reputation of the franchiser; 
    2. Maintaining inventory at a proper level to meet the supply plan of the franchiser and consumer demand, and displaying commodities for that purpose; 
    3. Meeting appropriate quality standards that the franchiser requires for commodities or services; 
    4. Using commodities or services provided by the franchiser if it is impossible to purchase commodities or services that meet the quality standards under subparagraph 3; 
    5. Meeting appropriate standards that the franchiser requires with respect to facilities and the exterior of the place of business or means of transport; 
    6. Consulting in advance with the franchiser when the franchisee changes commodities, services or business activities that he/she has handled; 
    7. Maintaining and providing data necessary to establish strategies for the integrated management and sales activities of the franchiser, such as accounting books related to the purchase and sale of commodities or services; 
    8. Allowing executives, employees, and other agents of the franchiser to enter the franchisee's place of business for inspecting and recording the current status of business of the franchisee or data under subparagraph 7; 
    9. Refraining from relocating the place of business or transferring the franchise license to any third party without the consent of the franchiser; 
    10. Refraining from engaging in the same type of business as that of the franchiser during the term of a franchise agreement; 
    11. Refraining from divulging business know how or trade secrets of the franchiser; 
    12. Notifying the franchiser of any infringement of business marks and providing appropriate cooperation as necessary for preventing infringement where a third party's infringement of business marks is discovered.
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    Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

    Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.

    Sean's profile may be found at: Sean C. Hayes