What Happens When You Miss the Filing Deadline for a Fraudulent Conveyance Action in South Korea? | Atlas Legal
Table of Contents
- 1. What Is the Exclusion Period for Fraudulent Conveyance Actions in South Korea?
- 2. When Does the Clock Start Ticking on the 1-Year Exclusion Period?
- 3. How Are Exclusion Periods Determined in South Korean Tax Delinquency Cases?
- 4. What Does “the Date of the Legal Act” Mean for the 5-Year Deadline?
- 5. How Can Creditors Avoid Missing the Filing Deadline in South Korea?
- 6. FAQ
Real Case: This case was handled by Senior Attorney Park Soyoung. Mr. A, who owed hundreds of millions of won in delinquent national taxes in South Korea, sold seven parcels of forestland in Gimpo to his own brother, Mr. B. The National Tax Service (NTS) investigated Mr. A’s assets and completed a deficit disposition, but only filed the fraudulent conveyance action more than one year later. What was the outcome? (Details have been adapted for clarity.)
Why Was Even the Government Powerless Against the Exclusion Period?
* This case is based on actual events, but certain facts have been adapted for clarity and client confidentiality has been protected.
In this case, the NTS had already prepared a detailed report on the use of asset sale proceeds during its deficit disposition process, thoroughly documenting the real estate sale and how the sale proceeds were spent. Nevertheless, the NTS filed its fraudulent conveyance action more than one year after the deficit disposition date. The court determined that the NTS had become aware of both the fraudulent act and the debtor’s fraudulent intent no later than the deficit disposition date, and accordingly dismissed the case. This case powerfully illustrates how critical exclusion period management is when exercising a creditor’s revocation right under South Korean law. The following sections examine the specific standards for determining these exclusion periods.
1. What Is the Exclusion Period for Fraudulent Conveyance Actions in South Korea?
A creditor’s revocation action (known as sahae-haengwi chwiso sosong) under South Korean law is subject to two time limitations. The action must be filed within 1 year from the date the creditor became aware of the cause for revocation, and within 5 years from the date of the fraudulent legal act. Whichever deadline arrives first controls.
Legal Nature of the Exclusion Period
These time limits are exclusion periods (jeocheok gigwan), not statutes of limitation (somyeol siho). While both systems prevent the exercise of rights after a certain time, there are critical practical differences.
| Category | Statute of Limitation | Exclusion Period |
|---|---|---|
| Tolling/Suspension | Can be tolled by demand, seizure, acknowledgment, etc. | Cannot be tolled or suspended |
| Court Examination | Only examined upon party’s affirmative defense | Examined ex officio by the court |
| Effect of Expiration | Claim dismissed on merits if defense raised | Case dismissed as inadmissible (without reaching the merits) |
| Burden of Proof | Party asserting completion of the limitation period | Party asserting expiration (beneficiary/subsequent acquirer) |
The most critical difference is that exclusion periods cannot be tolled. While a statute of limitation can be interrupted by sending a formal demand letter or filing for a provisional seizure, an exclusion period continues to run regardless of any measures taken. Furthermore, the court examines expiration ex officio, meaning that even if the opposing party does not raise the issue, the court will dismiss the case if the period has expired.
Requirement of Judicial Exercise
A creditor’s revocation right must be exercised exclusively by filing a lawsuit. Filing for a provisional disposition to prohibit disposal (cheobun geumji gacheobun) or completing a seizure registration does not satisfy the exclusion period requirement. The creditor must file the main action (bonan sosong) within the exclusion period.
2. When Does the Clock Start Ticking on the 1-Year Exclusion Period?
The “date the creditor became aware of the cause for revocation” does not simply mean when the creditor learned that the debtor disposed of assets. It means the date when the creditor became aware that the disposition constituted a fraudulent act prejudicing creditors, and further, that the debtor had fraudulent intent (sahae-ui uisa) (Supreme Court of Korea Decision 2007Da63102, decided March 26, 2009).
Key Trigger Points Recognized in South Korean Practice
Courts evaluate the totality of circumstances to determine when a creditor became aware of the cause for revocation. The most commonly disputed trigger points are as follows.
First, the time of provisional seizure and credit investigation. If a creditor investigated the debtor’s financial condition, confirmed the absence of other assets, and then filed for a provisional seizure, it is presumed—absent special circumstances—that the creditor became aware of the fraudulent act and the debtor’s fraudulent intent around the time of that seizure application. Completing an asset investigation implies that the creditor already recognized the debtor’s insolvency.
Second, the time of obtaining a registry transcript. When a creditor obtains a real property registry transcript or land register to prepare a provisional disposition application, courts frequently find that the creditor became aware of the fraudulent conveyance and fraudulent intent at that point. Once the creditor confirmed the ownership transfer through the registry, the 1-year countdown begins.
Third, when the creditor learned of the disposal of the debtor’s sole asset. If the debtor sold their only real property and converted it into easily consumable cash, and the creditor became aware of this fact, courts presume that the creditor also knew of the debtor’s fraudulent intent, absent special circumstances.
No Need to Know of the Beneficiary’s Bad Faith
An important point is that the creditor does not need to have been aware of the beneficiary’s or subsequent acquirer’s bad faith (i.e., their knowledge of the fraudulent nature of the transaction). The exclusion period begins running once the creditor recognizes the debtor’s fraudulent intent.
3. How Are Exclusion Periods Determined in South Korean Tax Delinquency Cases?
In South Korean national tax delinquency cases where the Republic of Korea acts as the creditor in a fraudulent conveyance action, the starting point of the exclusion period is determined based on when the responsible government official became aware of the relevant facts. The following case illustrates the specific standards applied by courts.
Case Study: Deficit Disposition Date Recognized as the “Date of Awareness”
Tax delinquent Mr. A had outstanding arrears on eight national tax assessments, including capital gains tax and comprehensive income tax. On August 18, 2020, Mr. A entered into a sales contract with his brother, Mr. B, for seven parcels of forestland located in Gimpo City, and completed the ownership transfer registration on August 25 of the same month.
The NTS then used its internal electronic database during the deficit disposition process to review the delinquent taxpayer’s asset records and determine whether any assets remained for collection. Notably, during the December 21, 2020 deficit disposition, the NTS prepared a Report on the Use of Asset Sale Proceeds in addition to the electronic database records, confirming how the real estate sale proceeds had been spent.
Furthermore, a factual inquiry to the Gimpo Registry Office of the Bucheon Branch of the Incheon District Court revealed that the NTS had applied for a seizure registration based on tax delinquency disposition on approximately August 24, 2020, but the application was rejected because ownership had already been transferred to Mr. B. This confirmed that the NTS had already grasped the specifics of the sales contract by around August 24, 2020.
The Court’s Determination
Based on these facts, the court found that no later than December 21, 2020, the NTS had become aware that the sales contract in this case was a fraudulent act committed with intent to defraud creditors. Since the fraudulent conveyance action was filed on November 2, 2022—more than one year after that date—the court held that the exclusion period had expired and dismissed the case as inadmissible.
Special Considerations for Government Agency Creditors in South Korea
When public institutions such as the Korea Deposit Insurance Corporation or the NTS act as creditors, the starting point of the exclusion period is determined based on the awareness of the official actually responsible for the collection and preservation of the secured claim, not the head of the institution. Even when a bankruptcy trustee has been appointed, the relevant date is when the responsible staff member received reports or became aware of the facts.
4. What Does “the Date of the Legal Act” Mean for the 5-Year Deadline?
The “date of the legal act,” which serves as the starting point for the 5-year exclusion period, refers to the date on which the fraudulent legal act (such as a contract) was actually executed, not the date appearing as the cause of registration.
Provisional Registration and Final Registration
A frequently litigated issue involves cases where a final registration has been completed based on a provisional registration. If the legal act underlying the provisional registration is not clearly different from the act underlying the final registration, the exclusion period is calculated from the date of the legal act underlying the provisional registration.
However, if a revocation action against the provisional registration was properly filed within the exclusion period calculated from the provisional registration date, an additional revocation claim against the final registration may be added even after the exclusion period has expired.
Exclusion Period for Actions Against Subsequent Acquirers
Even if a creditor obtains a favorable judgment against the initial beneficiary, that judgment’s effect does not extend to subsequent acquirers (jeondeukja). To seek restitution from a subsequent acquirer, the creditor must file a separate action within the exclusion period (1 year from when the initial fraudulent act was discovered). The starting point remains the same regardless of the change in the defendant.
Amendment of Claims and Addition of Secured Claims
If a fraudulent conveyance revocation action was properly filed within the exclusion period, a restitution claim (either monetary compensation or cancellation of registration) may be added or amended even after the exclusion period has expired. Additionally, adding or substituting the secured claim during the litigation is not considered an amendment of the action and is therefore permissible even after the exclusion period.
5. How Can Creditors Avoid Missing the Filing Deadline in South Korea?
The most critical mistake in a South Korean fraudulent conveyance action is allowing the exclusion period to expire. No matter how obvious the fraudulent act may be, if the deadline passes, the case will be dismissed without the court ever reaching the merits. The following practical considerations must be carefully observed.
Step-by-Step Response Checklist
Step 1: Document when you became aware of the fraudulent act. Record the specific circumstances and timing of when you learned about the debtor’s asset disposition. Securing objective evidence such as the date a registry transcript was obtained, the date of an asset investigation report, or the date a provisional seizure was filed is essential.
Step 2: Calculate the exclusion period deadlines. Calculate both the 1-year period from the “date of awareness of the cause for revocation” and the 5-year period from the “date of the legal act,” and identify which deadline arrives first. In practice, the 1-year period is usually the binding constraint.
Step 3: File the main action promptly. Provisional measures such as provisional dispositions or seizures alone do not satisfy the exclusion period requirement. The main action must be filed within the exclusion period. Since the filing date of the complaint is the relevant date, filing as early as possible when the deadline is approaching is the safest course.
Step 4: Address subsequent acquirers. Even if the beneficiary has transferred the assets to a third party, a separate action against the subsequent acquirer must be filed within 1 year from when the initial fraudulent act was discovered. The exclusion period for the subsequent acquirer runs independently, even if litigation against the original beneficiary is ongoing.
| Category | Period | Starting Point | Key Notes |
|---|---|---|---|
| Short Exclusion Period | 1 year | Date of awareness of cause for revocation | Awareness of both fraudulent act + fraudulent intent |
| Long Exclusion Period | 5 years | Date of the legal act | Actual contract date (not registration date) |
| Against Subsequent Acquirer | 1 year | Date of awareness of initial fraudulent act | Calculated separately from beneficiary action |
| Provisional Registration | 1 yr / 5 yrs | Date of legal act underlying provisional registration | Not from final registration date |
6. FAQ
Atlas Legal has extensive experience in creditor’s revocation litigation in South Korea, including successfully defending beneficiaries by asserting the expiration of the exclusion period. Our team has also represented creditors who filed timely actions to recover assets transferred through fraudulent conveyances.
* The legal information presented in this article is for general guidance purposes only. Legal conclusions may differ depending on the specific facts and circumstances of each case. For actual legal matters, please consult with a qualified attorney.