A Franchisor may be Unable to Prosecute a Franchisee for Embezzlement in Korea

Article 355 of Korea’s Criminal Act defines embezzlement as: “a person who, having the custody of another’s property, embezzles or refuses to return the property shall be punished by imprisonment for not more than five years or a fine not exceeding fifteen million won.”

In a landmark case in Korea’s Franchise Jurisprudence, the Supreme Court ruled a franchisee may not be held criminally liable for embezzlement for “arbitrary spending of funds” and not paying franchise fees under the franchise agreement, since the Supreme Court deemed that the funds are not funds held, in short, in trust for the franchisor and the franchisor did not maintain a PNL (partnership-like) relationship with the franchisee.

Franchisors in Korea, must, carefully monitor the financial situation of franchisees.  Often when franchises fail in Korea, the franchise fees are of the last priority.  Korea has pre-litigation measures that may be utilized to assist in guaranteeing franchise fees are paid – including attaching rental deposits, receivables and even movables.

Act quick.  Often, franchises, in Korea, fail as fast as they open.
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Sean Hayes may be contacted at: [email protected]

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

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