Bankruptcy in U.S. Effective in Korea?

Legal Ease Column by Sean Hayes
from Sept. of 2003.
Appeared in the Korea Times

Dear Sean, I just received notice that a former customer filed bankruptcy in New York. The bankruptcy court attached his assets in the United States, but the assets didn't cover the entire debt owed to me. He also has assets in Korea. Can I use the bankruptcy decision to attach assets in Korea? Does a Korean court respect the bankruptcy holding of foreign courts? Confused in New York and Yeouido.

Dear Confused, Article 3 Clause 2 of the Korean Bankruptcy Act states that a "bankruptcy which is declared in a foreign country, shall be ineffective to the property in Korea." The language seems very clear and the answer to your question also seems very clear, but a recent case sheds a little more light on the issue.

A Supreme Court case (2000DA64359) decided April of this year clarifies Article 3 Clause 2 of the Bankruptcy Act. In the case the debtor company, that owned the international tradename and trademark, "Paolo Gucci," filed bankruptcy in a New York court. The company declared the trademark and tradename as one of the company assets. What complicates the matter even more is that the company declared their worldwide trademark and tradename as company assets, not only the U.S. declared value, but the worldwide value. The bankruptcy trustee sold the international rights to the "Paolo Gucci" name to an auction bidder. The bidder-plaintiff asserted his rights to the name not only in the U.S., but in Korea. The bidder-plaintiff asserted in a Korean court that it should also hold the rights in Korea. The Korean name was owned by a Korean-defendant company who asserted that the foreign bankruptcy holding is not enforceable in Korea because of Article 3 Clause 2 of the Bankruptcy Act.

The Supreme Court disagreed with the Korean-defendant. The Court held that even though the Article 3 Clause 2 declares that "bankruptcy which is declared in a foreign country, shall be ineffective to the property in Korea" the plaintiff is the owner of the Korean tradename and trademark as well.

The Court has created a large exception to the broad language of the Article 3 Clause 2, by holding that a foreign bankruptcy holding is not valid in of itself, but the Court will respect foreign judgments and the rights of trustees in bankruptcy actions to sell the international rights to trademarks, tradenames, and patents. The realities in the world today are that rights to many assets are worldwide assets and to say an asset is only situated in Korea makes little sense in the worldwide marketplace.

So to answer your question the foreign judgment probably will not be effective in Korea, but if the assets have a tinge of cross-boarder inter-connectivity, with the same asset in a foreign jurisdiction, you may be able to assert an ownership right to the property.

For more information about the Korean Supreme Court and its decisions see http://www.scourt. go.kr/english/index.html and for more information on bankruptcy see the Korean Development Institutes webpage at http:// www.kdi.re.kr/.