Security on Movable Property and Receivables in Korea

The Ministry of Justice has recently announced a draft bill concerning the securitization of movables and receivables. The Bill has been pushed for strongly by SMEs. SME’s have complained, since the 1997 Currency Crisis, that they are unable to adequately capitalize at market rates. Representatives of the IMF, whom I spoke with a few years back, were also very keen on this type of bill. They believed that this Bill would help foster SMEs and new entrants’ potential for innovation and growth. If you are interested on an article on the collection of debt in Korea, please see: Collecting Debts under Korean Law.

At present, over 92% of securitized lending is through real estate. The reason stems from the lack of a disclosure system for movables and receivables. The Bill intends to address this issue and solve the problem of SME with adequate raw materials, accounts receivable, intellectual property, and inventory, and no real property.

Basic Details of the Korean Act on Security on Movable Property and Receivables (the “Bill”):

1. Grantors can only be those with a registered business name (exception for intellectual property rights);

5. Grantor may be a non-registered business if the securitization is of intellectual property;

6. Avoids conflicts with other laws in Korea by exempting ships, aircraft, construction equipment, and vehicles (bill of lading or may be registered under other laws);

7. Avoids conflicts with other laws by still allowing, under prior security systems, security assignments, mining securities, and factory mortgages;

8. The security interest holder is granted a right of priority;

9. The Bill grants the holder the right to request the exclusion of third-party “interferers” in the interest;

10. Bill grants the holder the right to request the transfer, disposal, and auction of all securities with the exception of intellectual property;

11. Bill grants the holder only the right to request an auction of intellectual property rights;

12. Bill creates a system to register receivables and perfect against third parties after registration (discussed in a follow-up post);

13. Law Firms and consultants are presently assisting some proactive lenders in creating internal systems and processes in order to take advantage of these new, eagerly anticipated lending opportunities.

Sean Hayes 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, and IPG Legal is consistently ranked Top Dispute Resolution Law for our litigation services.

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