The Hotchpot Rule in Korean Insolvency Proceedings

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Han, Min
Issue Date
BK 21 law
Journal of Korean Law, Vol.7 No.2, pp. 445-484
Debtor Rehabilitation and Bankruptcy LawUNCITRAL Model Law on Cross-Border Insolvencyprinciple of territorialityprinciple of universalitybankruptcy proceedingrehabilitation proceedingrule of payment in concurrent proceedingshotchpot rulerule of payment in concurrent proceedings
A new consolidated insolvency law called the Debtor Rehabilitation and Bankruptcy Law

(DRBL), which became effective in the Republic of Korea on April 1, 2006, has discarded the

principle of territoriality under the previous insolvency laws and adopted the so-called modified

principle of universality. At least for the purpose of Korean laws and Korean insolvency

proceedings, therefore, the effect of an insolvency proceeding which has commenced in Korea

would have effect on the debtors assets situated in a foreign country. However, whether and to

what extent a Korean insolvency proceeding would be recognized and enforced in a foreign

country, in which the debtors assets are situated, depends upon the laws of that foreign country.

If the recognition or enforcement of a Korean insolvency proceeding is wholly or partially denied

by that foreign country, what measures could be taken in a Korean insolvency proceeding in

order to achieve, as much as possible, the equality of payments between a creditor who received

payment outside of Korea and other creditors who receive payments in a Korean insolvency

proceeding? One such measure would be to apply the rule of payment adjustment newly

established under Article 642 of the DRBL, which is similar to the hotchpot rule embodied in

Article 32 of the Model Law. Article 642 of the DRBL primarily addresses payment made to a

creditor out of a concurrent foreign proceeding and attempts to adjust payment to be made to

such creditor in a Korean insolvency proceeding after taking into account the amount of such

payment made abroad to the same creditor. As the hotchpot rule incorporated in Article 642 of the

DRBL is rather new in Korea, there are not yet any court cases or established court practices at

this juncture. Scholarly discussions are just beginning. Thus, this article attempts to identify

issues which will likely arise in connection with the application of Article 642 of the DRBL and

presents the authors analyses and observations. One of the most notable observations of the

author in this article is that despite the lack of a clear statutory provision, payment recovered

from collateral situated outside of Korea, particularly in the case of Chapter 2 rehabilitation

proceedings of the DRBL which are similar to Chapter 11 proceedings of the U.S. Bankruptcy

Journal of Korean Law | Vol. 7, 445-484, June 2008

* This Article has been prepared based on the authors existing article written in Korean, International

Finance and Cross-Border Insolvency (2) - Concerning the Hotchpot Rule, 28 BFL (Center for Financial Law of

Seoul National University, March 2008). This Article, however, has added certain new sections and

reorganized and refined the discussions in said article while the existing observations and views of the

author are maintained.

** The Author is a partner at Kim & Chang. He received an LL.B. in 1981 from Seoul National

University College of Law and an LL.M. in 1992 from Cornell Law School. He is a member of the Korean

and New York bars.

Code, should not be prejudiced by Article 642 of the DRBL. In addition, in the authors view, as

Article 642 of the DRBL does not address payment made out of the debtors overseas assets where

there is no concurrent foreign insolvency proceeding, it is necessary to establish and apply

another rule based on the theory of unjust enrichment —i.e., disgorgement of such payment back

to the insolvency estate of the Korean insolvency proceeding —in order to achieve equality of

payments within a Korean insolvency proceeding vis-a-vis other creditors of the same class and

ranking in the Korean insolvency proceeding.
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College of Law/Law School (법과대학/대학원)The Law Research Institute (법학연구소) Journal of Korean Law (JKL)Journal of Korean Law Volume 07 Number 1/2 (2007)
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