WU Ying-Chieh, Rebooting - Supreme Court Judgement 2001. 7. 13. 2001Da9267, Korean Lawyers Association Journal, Vol.71, No.2 (2022), pp.317-343.
<Abstract>
Once a trust is constituted, property held by the trustee no longer forms part of the settlor’s personal assets. This article examines whether this effect should be maintained if the settlor (i.e., the debtor) of a security trust is given a rehabilitation order by a court. If a debtor, as the settlor of a security trust, transfers his land to the trustee as security for his creditor, the debtor’s personal creditors would not be capable of recouping their debts from the land held by the trustee when the debtor falls into default and becomes bankrupt. The question arises as to whether this remains true if, instead of a bankruptcy order, a debtor rehabilitation order is given to the debtor (i.e., the settlor) by a court. The bankruptcy order and the debtor rehabilitation order are two distinct orders of the court designed to assist debtors in financial distress and to help them enjoy a fresh start. However, while the bankruptcy order aims to liquidate and distribute all the debtor’s assets to his creditors, the debtor rehabilitation order is designed to create a debt restructuring scheme that allows impecunious debtors to continue to operate their business so as to improve and restore their liquidity. The Supreme Court of the Republic of Korea has recognised that the asset-partitioning effect of security trusts should be maintained when the debtor has received a debtor rehabilitation order. However, it could also be argued that the immunity effect of security trusts should be circumscribed when a debtor rehabilitation order is made. Otherwise, the functioning of an efficient and workable debt restructuring scheme would become very difficult or nearly impossible. This article disagrees the Supreme Court’s position and argues that the subject matter of a security trust should be subject to the debtor rehabilitation order and form part of the debt restructuring scheme.
<Keywords>
beneficial rights, debtor rehabilitation orders, mortgages, non-performance of debts, se curity trusts, possession
WU Ying-Chieh, Rebooting - Supreme Court Judgement 2001. 7. 13. 2001Da9267, Korean Lawyers Association Journal, Vol.71, No.2 (2022), pp.317-343.
<Abstract>
Once a trust is constituted, property held by the trustee no longer forms part of the settlor’s personal assets. This article examines whether this effect should be maintained if the settlor (i.e., the debtor) of a security trust is given a rehabilitation order by a court. If a debtor, as the settlor of a security trust, transfers his land to the trustee as security for his creditor, the debtor’s personal creditors would not be capable of recouping their debts from the land held by the trustee when the debtor falls into default and becomes bankrupt. The question arises as to whether this remains true if, instead of a bankruptcy order, a debtor rehabilitation order is given to the debtor (i.e., the settlor) by a court. The bankruptcy order and the debtor rehabilitation order are two distinct orders of the court designed to assist debtors in financial distress and to help them enjoy a fresh start. However, while the bankruptcy order aims to liquidate and distribute all the debtor’s assets to his creditors, the debtor rehabilitation order is designed to create a debt restructuring scheme that allows impecunious debtors to continue to operate their business so as to improve and restore their liquidity. The Supreme Court of the Republic of Korea has recognised that the asset-partitioning effect of security trusts should be maintained when the debtor has received a debtor rehabilitation order. However, it could also be argued that the immunity effect of security trusts should be circumscribed when a debtor rehabilitation order is made. Otherwise, the functioning of an efficient and workable debt restructuring scheme would become very difficult or nearly impossible. This article disagrees the Supreme Court’s position and argues that the subject matter of a security trust should be subject to the debtor rehabilitation order and form part of the debt restructuring scheme.
<Keywords>
beneficial rights, debtor rehabilitation orders, mortgages, non-performance of debts, se curity trusts, possession