Can a Dissolved Company Sue in South Korea? Debt Collection Strategies | Atlas Legal

1. Can Deemed-Dissolved Companies Sue in South Korea?

Core Answer

Yes, deemed-dissolved companies can file lawsuits under Korean law. According to Supreme Court precedents, even if a company is deemed dissolved and deemed liquidated, it does not completely cease to exist if legal relationships remain that need practical settlement. The company continues to exist within the scope of settling these remaining rights and can file lawsuits through its liquidator.

Legal Basis

The legal basis consists of three main elements under Korean law.

First, Article 520-2 of the Commercial Act stipulates deemed dissolution. If a company fails to file business registrations for five consecutive years and does not respond to a public notice by the Director of the Court Administration, it is deemed dissolved.

Second, the same article stipulates deemed liquidation. If three years pass after deemed dissolution, the company is deemed to have completed liquidation.

Third, despite these provisions, the Supreme Court has ruled that if legal relationships remain, the company does not completely cease to exist within the scope of settling these relationships. This is the critical legal principle that makes litigation possible.

Practical Application

In the case handled by Atlas Legal, X Corporation had been deemed dissolved for five years and deemed liquidated for three years. However, the company had an uncollected advance payment claim from an ethanol supply contract. The court recognized that this claim constituted a remaining legal relationship and acknowledged the company’s capacity to sue.

CEO Mr. A, the director at the time of dissolution, automatically became the liquidator by law (Article 531, Paragraph 1 of the Commercial Act) and filed the lawsuit in that capacity. The defendant argued that the company had no litigation capacity since it had ceased to exist, but the court rejected this argument based on Supreme Court precedents.

This case demonstrates that deemed-dissolved companies are not completely extinct under Korean law. If claims or other legal relationships remain, rights can be pursued through litigation. Atlas Legal has extensive experience in successfully handling such complex cases.

2. What is Deemed Dissolution Under Korean Commercial Act Article 520-2?

Legal Framework

Article 520-2 of the Commercial Act establishes the deemed dissolution system to address dormant companies. This provision enables administrative cleanup of companies that have effectively ceased operations but remain registered.

Requirements for Deemed Dissolution

Three requirements must be met for deemed dissolution under Korean law.

First, the company must fail to file any business registrations for five consecutive years. Business registrations include changes in directors, capital increases or decreases, amendments to articles of incorporation, and other registrable matters. If none of these are filed for five years, the first requirement is satisfied.

Second, the Director of the Court Administration must issue a public notice. If the first requirement is met, the Director notifies the company in writing and publishes a public notice giving the company two months to file business registrations or explain why none were filed.

Third, the company must fail to respond. If the company does not file business registrations or provide an explanation within two months of the public notice, it is deemed dissolved.

Legal Effect of Deemed Dissolution

Once deemed dissolved, the company enters liquidation status. The directors at the time of dissolution automatically become liquidators (Article 531, Paragraph 1 of the Commercial Act), and liquidation registration is completed by the registry office (Article 520-2, Paragraph 4).

However, deemed dissolution differs from voluntary dissolution. Under Article 520-2, Paragraph 3, shareholders can resolve to continue the company within three years through a special resolution at a general shareholders’ meeting. This provides an opportunity to revive the company.

In the Atlas Legal case, X Corporation had been deemed dissolved and had not taken steps to continue the company. However, when the ethanol supply contract advance payment claim was discovered, we advised that the claim could still be pursued under Supreme Court precedents. This professional advice led to successful debt recovery.

Practical Considerations

Several practical issues arise with deemed dissolution under Korean law.

First, many company representatives are unaware that deemed dissolution has occurred. They learn about it only when they discover uncollected claims or other legal issues later.

Second, confusion exists about whether companies can continue operating after deemed dissolution. In principle, deemed-dissolved companies enter liquidation status and should not conduct normal business operations. However, liquidation affairs can be executed.

Third, questions arise about whether claims existing at the time of deemed dissolution can still be pursued. As the Supreme Court has ruled, if legal relationships remain, the company does not completely cease to exist within the scope of settling these relationships, making claims pursuit possible.

Atlas Legal, located in Songdo, Incheon, specializes in corporate law, corporate disputes, corporate advisory services, and corporate crimes (fraud, breach of trust, embezzlement, tax law, customs law). We have extensive experience in complex legal issues surrounding deemed dissolution, liquidation of dormant companies, and corporate liquidation.

3. What Does Deemed Liquidation Mean?

Concept of Deemed Liquidation

Article 520-2, Paragraph 5 of the Commercial Act stipulates that if three years pass from the deemed dissolution date, the liquidation is deemed completed on the day those three years expire. This is called “deemed liquidation.”

Liquidation refers to the process of settling a company’s legal relationships and distributing remaining assets to shareholders after dissolution. Normally, liquidators execute liquidation affairs, including settling current business, collecting claims, repaying debts, and distributing remaining assets.

However, deemed liquidation is a legal fiction that liquidation is completed when three years pass after deemed dissolution, regardless of whether liquidation affairs were actually executed. This is a legislative measure to administratively conclude companies that have not conducted actual liquidation.

Legal Effect of Deemed Liquidation

Once deemed liquidation occurs, the company’s legal status changes significantly under Korean law.

First, liquidation completion registration is automatically completed by the registry office (Article 520-2, Paragraph 6). The company’s corporate registration is closed, and it disappears from the corporate registry.

Second, in principle, the company ceases to exist as a legal entity. Once liquidation is completed, the company’s legal personality is extinguished, and it can no longer be a party to legal relationships.

Third, however, according to Supreme Court precedents, if legal relationships remain that need practical settlement, the company does not completely cease to exist within the scope of settling these relationships. This is the critical exception that allows deemed-liquidated companies to pursue claims.

Relationship Between Deemed Liquidation and Company Extinction

The question of whether deemed liquidation means complete company extinction is crucial. Formally, once liquidation is completed, the company ceases to exist. However, the Supreme Court takes a different view.

Supreme Court Decision 94Da7607 (May 27, 1994) states: “Even if a company is deemed dissolved and deemed liquidated under Article 520-2 of the Commercial Act, if legal relationships remain that need practical settlement such as disposing of remaining assets or collecting claims, the company does not completely cease to exist within the scope of settling these remaining legal relationships, and liquidation procedures can still proceed.”

Similarly, Supreme Court Order 90Ma672 (April 30, 1991) ruled: “Even if a company completed liquidation registration, if claims or other assets remain that need disposal, it is appropriate to interpret that the company has not been extinguished within the scope of settling these remaining legal relationships.”

This means that deemed liquidation does not result in absolute company extinction. If substantive legal relationships remain, the company continues to exist to that extent and can pursue its rights.

Claims Pursuit After Deemed Liquidation

The Atlas Legal case clearly demonstrates that claims pursuit is possible after deemed liquidation.

X Corporation had been deemed liquidated for three years. Formally, the company no longer existed. However, an advance payment claim from an ethanol supply contract remained uncollected. We argued that this constituted a remaining legal relationship, and the court accepted this argument.

The court applied the Supreme Court precedents, ruling that X Corporation had not been completely extinguished within the scope of the advance payment claim and thus had litigation capacity. CEO Mr. A, as liquidator, had the authority to represent the company and file the lawsuit.

This case demonstrates that even after deemed liquidation under Korean law, if claims or other legal relationships remain, these rights can be pursued. Atlas Legal has successfully achieved this based on accurate understanding and application of the relevant legal principles.

4. Supreme Court Precedents on Company Extinction

Supreme Court Decision 94Da7607 (May 27, 1994)

This landmark decision established the principle that deemed-dissolved and deemed-liquidated companies do not completely cease to exist if legal relationships remain.

The case involved a company that had been deemed dissolved and deemed liquidated, but claims remained. The lower court dismissed the case, ruling that the company had no litigation capacity. However, the Supreme Court reversed, establishing the following legal principle:

“Even if a company is deemed dissolved and deemed liquidated under Article 520-2 of the Commercial Act, if legal relationships remain that need practical settlement such as disposing of remaining assets or collecting claims, the company does not completely cease to exist within the scope of settling these remaining legal relationships, and liquidation procedures can still proceed. Therefore, liquidators or their successors can file lawsuits in the company’s name to collect claims.”

This decision clearly established that deemed liquidation does not result in absolute company extinction. It is the most important precedent enabling deemed-liquidated companies to pursue claims.

Supreme Court Order 90Ma672 (April 30, 1991)

This order established a similar principle for companies that completed liquidation registration.

“Even if a company completed liquidation registration, if claims or other assets remain that need disposal, it is appropriate to interpret that the company has not been extinguished within the scope of settling these remaining legal relationships. In such cases, the liquidator at the time of liquidation completion registration retains the authority to represent the company to execute remaining liquidation affairs.”

This precedent is significant because it applies not only to deemed liquidation but also to companies that actually completed liquidation procedures. If legal relationships remain, the company does not cease to exist even after liquidation registration is completed.

Core Legal Principles from Supreme Court Precedents

The following core principles can be derived from these Supreme Court precedents under Korean law.

First, deemed dissolution and deemed liquidation do not result in absolute company extinction. This is a formal administrative measure that does not mean substantive extinction.

Second, if legal relationships remain that need practical settlement, the company continues to exist within the scope of settling these relationships. Legal relationships include not only claims but also debts, ownership of remaining assets, and other rights and obligations.

Third, in such cases, liquidators retain the authority to represent the company. Liquidators can file lawsuits, collect claims, and repay debts in the company’s name.

Fourth, this principle applies not only to deemed liquidation but also to actual liquidation completion. Even after formal liquidation procedures are completed, if substantive legal relationships remain, the company continues to exist to that extent.

Application to the Atlas Legal Case

In our case, we accurately applied these Supreme Court precedents to achieve victory.

X Corporation had been deemed liquidated for three years and formally no longer existed. However, we identified the uncollected advance payment from the ethanol supply contract as a remaining legal relationship.

Based on Supreme Court Decision 94Da7607, we argued that X Corporation had not been completely extinguished within the scope of this claim and thus retained litigation capacity. We emphasized that CEO Mr. A, as the liquidator, had the authority to represent the company and file the lawsuit.

The court fully accepted our arguments, ruling: “According to Supreme Court precedents, even deemed-dissolved and deemed-liquidated companies do not completely cease to exist if legal relationships remain that need practical settlement. X Corporation’s advance payment claim falls within the scope of remaining legal relationships, so the company has not been extinguished to that extent and has litigation capacity.”

This demonstrates that accurate understanding and application of Supreme Court precedents is essential. Atlas Legal’s corporate law expertise and litigation experience were the key factors in this victory.

5. Who Can Represent the Company? Understanding Liquidators

Core Answer

Under Korean law, liquidators represent deemed-dissolved companies. Directors at the time of dissolution automatically become liquidators (Article 531, Paragraph 1 of the Commercial Act), and liquidators have the authority to execute liquidation affairs and represent the company. Therefore, deemed-dissolved and deemed-liquidated companies can file lawsuits through their liquidators.

Legal Status of Liquidators

Liquidators are persons who execute liquidation affairs after company dissolution. Article 531 of the Commercial Act stipulates the methods of liquidator selection.

First, if the articles of incorporation designate liquidators, those persons become liquidators. This is the first priority method.

Second, if the articles do not designate liquidators, the general shareholders’ meeting selects liquidators. This is the second priority method.

Third, if neither the articles designate nor the shareholders’ meeting selects liquidators, directors at the time of dissolution automatically become liquidators. This is the default statutory provision.

In most small and medium-sized companies, liquidators are not designated in the articles, nor are they selected by shareholders’ meeting. Therefore, the third method applies, and directors at the time of dissolution become liquidators by operation of law.

In the Atlas Legal case, X Corporation’s articles did not designate liquidators, and no shareholders’ meeting was held. Therefore, CEO Mr. A, as the director at the time of dissolution, automatically became the liquidator by law and filed the lawsuit in that capacity.

Court Appointment of Liquidators

Article 531, Paragraph 2 of the Commercial Act provides for court appointment of liquidators in special circumstances.

“If there are no liquidators or if liquidators are vacant, the court shall appoint liquidators upon request by interested parties.”

“No liquidators” means there are no provisions in the articles, no selection by shareholders’ meeting, and no directors at the time of dissolution. For example, if a director has died or gone missing.

“Liquidators are vacant” means there were liquidators, but they became absent due to resignation, death, dismissal, etc.

“Interested parties” means persons with legal interests in liquidator appointment, including shareholders, creditors, debtors, etc.

To request court appointment of liquidators, an application must be filed with the competent court (district court with jurisdiction over the company’s principal office location). The court appoints suitable persons as liquidators, often professionals such as attorneys or accountants.

Authority and Duties of Liquidators

Liquidators have the following authority and duties under Korean law.

Authority of Liquidators

• Authority to represent the company
• Settling current business affairs
• Collecting claims and repaying debts
• Distributing remaining assets

Duties of Liquidators

• Duty of care as a good manager
• Duty of loyalty
• Duty to execute liquidation affairs
• Duty to prepare inventory and balance sheet

In the Atlas Legal case, Mr. A had the authority and duty as liquidator to collect the company’s advance payment return claim. We made this clear and proceeded with the litigation.

Practical Considerations

Several practical matters require attention regarding liquidators.

First, confirming liquidator status is important. Before filing a lawsuit, it must be clear who the liquidator is. The corporate register can be checked to identify directors at the time of dissolution.

Second, the liquidator’s representative authority must be proven. If the opposing party disputes the liquidator’s representative authority in litigation, this must be proven through Commercial Act provisions and corporate register documents.

Third, if there are multiple liquidators, whether they jointly represent must be confirmed. Unless otherwise provided in the articles or shareholders’ meeting resolution, liquidators jointly represent the company.

Fourth, the liquidator’s contact information must be confirmed. If the director at the time of dissolution cannot be reached, court appointment of a liquidator may be necessary.

Atlas Legal systematically reviewed these practical matters to ensure our client could file the lawsuit legitimately as liquidator.

6. Atlas Legal’s Successful Case Analysis

※ This case is based on an actual successful case, with some facts adapted for clarity while protecting client confidentiality.

Case Origin – Criminal Proceedings

Atlas Legal was retained to represent CEO Mr. A of X Corporation, who was indicted as a defendant in a criminal case. While specific case details cannot be disclosed, we discovered important facts during case record review.

X Corporation had entered into an ethanol supply contract with the complainant around July 2020 and paid an advance payment according to the contract. However, the complainant failed to supply the ethanol and did not return the advance payment. While not directly at issue in the criminal case, this was relevant background civil debt relationship.

We determined that this claim had not reached the statute of limitations, evidence was clear, and legal pursuit was possible. The problem was that X Corporation had already been deemed dissolved and deemed liquidated.

Convincing the CEO

CEO Mr. A had initially completely abandoned hope of claim collection. “What’s the point if the company is already legally dissolved?” was his thinking.

Indeed, the company had not conducted any business activities for over five years and had not filed any registrations. It failed to respond to the Court Administration Director’s public notice and was deemed dissolved, then three years passed resulting in deemed liquidation. By common sense, the company appeared to have completely ceased to exist.

However, Atlas Legal persuaded Mr. A based on Supreme Court precedents. We presented Supreme Court Decision 94Da7607 (May 27, 1994) and Supreme Court Order 90Ma672 (April 30, 1991), explaining that if legal relationships remain that need practical settlement, the company has not ceased to exist within the scope of settling these relationships.

We also explained that as director at the time of dissolution, Mr. A automatically became the liquidator and could file a lawsuit representing the company in that capacity. After hearing this legal analysis, Mr. A agreed to file the lawsuit.

Litigation Strategy

Our litigation strategy was clear.

First, we argued that although X Corporation was deemed liquidated, the uncollected advance payment from the ethanol supply contract constituted a clear remaining legal relationship, and according to Supreme Court precedents, the company had not been completely extinguished within this scope.

Second, we made clear that as director at the time of dissolution, Mr. A automatically became the liquidator by law and had the authority to file this lawsuit in that capacity.

Third, we objectively proved the existence and substance of the claim through the ethanol supply contract, advance payment evidence, and proof of non-supply.

Fourth, we prepared relevant precedents and legal principles in anticipation of the defendant disputing the company’s litigation capacity or the liquidator’s representative authority.

Judgment Result

The court fully accepted our arguments and granted X Corporation’s claim. The judgment cited Supreme Court precedents, stating that even deemed-dissolved and deemed-liquidated companies do not completely cease to exist if legal relationships remain, within the scope of settling those relationships.

The defendant was ordered to pay the full advance payment amount plus late payment damages. CEO Mr. A expressed great satisfaction, saying “I never thought I would recover money I had given up on.”

This case demonstrates Atlas Legal’s expertise and practical experience in discovering civil legal relationships during criminal proceedings and successfully exercising rights despite company deemed dissolution based on Supreme Court precedents.

7. Claims Discovered During Criminal Proceedings

Core Answer

Careful examination of case records during criminal trial defense can reveal hidden legal relationships for clients. Atlas Legal always reviews possibilities for civil remedies when handling criminal cases. This case resulted from such professional review.

Integrated Approach to Criminal and Civil Matters

While criminal and civil proceedings are separate, they are often closely connected in actual cases. Economic-related criminal cases frequently involve underlying civil debt relationships.

When Atlas Legal handles criminal cases, we do not focus solely on criminal defense. We carefully analyze case records to also review civil legal relationships the client may have.

In this case, the criminal trial records included various evidence such as the ethanol supply contract from July 2020, advance payment evidence, and emails. Through these, we confirmed that X Corporation had an advance payment return claim.

Discovery of Hidden Rights

CEO Mr. A had completely abandoned claim collection because the company was not operating and was legally deemed dissolved. He was focused only on the criminal case and had not even considered civil remedies.

However, Atlas Legal confirmed the following points.

First, the ethanol supply contract from July 2020 was clearly executed and a written contract existed. Second, the advance payment was actually paid and provable through bank transfer records. Third, the defendant failed to supply ethanol and did not return the advance payment. Fourth, the statute of limitations period had not expired since the claim arose.

This constituted a clear legal relationship with sufficient grounds for pursuit. We explained these facts to Mr. A and recommended filing a civil lawsuit.

Role of Specialized Attorneys

This case demonstrates why specialized attorneys are important. Laypeople often fail to recognize their legal rights due to insufficient legal knowledge. This is especially true when companies have been deemed dissolved.

Based on criminal litigation experience and corporate law expertise, Atlas Legal identified the client’s rights within complex factual relationships. We did not stop at criminal defense but achieved civil remedies as well.

Located in Songdo, Incheon, Atlas Legal has extensive experience and expertise in corporate specialization, corporate disputes, corporate advisory services, and corporate crimes (fraud, breach of trust, embezzlement, tax law, customs law). This expertise was the key factor in this victory.

8. FAQ

Atlas Legal provides legal services in corporate specialization, corporate disputes, corporate advisory services, and corporate crimes (fraud, breach of trust, embezzlement, tax law, customs law) in Songdo, Incheon, South Korea. We recently achieved victory in an advance payment return claim lawsuit for a company deemed dissolved and liquidated under Commercial Act Article 520-2, representing the company in collecting an advance payment from an ethanol supply contract dating to July 2020. This case demonstrates our ability to discover civil legal relationships during criminal proceedings and accurately apply Supreme Court precedents to restore client rights. We have extensive experience in professional consultation and litigation representation for complex legal issues including claim collection for deemed-dissolved companies, dormant company cleanup, and corporate liquidation.

※ The case introduced in this article is based on an actual successful case, with some facts adapted for clarity while protecting client confidentiality.