Attachment & Mutual Rescission in South Korea

A Korean company agreed to sell its biogas power generation business to another company for KRW 850 million. A creditor of the seller provisionally attached KRW 350 million of that purchase price. A little over three months later, the two companies agreed to call the deal off. The buyer then argued that, because the contract was gone, the purchase price claim was gone too, and so was the thing the creditor had attached.

Until now, that argument usually worked in South Korea. For more than two decades, the Supreme Court of Korea held that a third-party debtor could rely on a mutual rescission against the attaching creditor unless the rescission was made, without any reasonable ground, solely to extinguish the attached claim (Supreme Court of Korea, June 1, 2001, 98Da17930; Supreme Court of Korea, September 10, 2015, 2014Da200619).

On September 29, 2026, the en banc Supreme Court of Korea abandoned that rule. The principle and the exception are now reversed: a mutual rescission after attachment generally cannot be asserted against the attaching creditor, and the party relying on it must prove an exception (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578). The ruling changes the calculation for creditors holding attachments and for counterparties served with attachment orders.

What happened in this case?

The facts below are as summarized by the Supreme Court of Korea. We refer to the seller as Company A and to the buyer, the defendant, as the third-party debtor (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

In this lawsuit the creditor claimed KRW 30,000,100 and delay damages as a collection amount (Ulsan District Court, August 17, 2023, 2022Na16284). The third-party debtor argued that the mutual rescission after the provisional attachment had extinguished the purchase price claim. The first-instance court found it hard to say that the rescission was made without any reasonable ground solely to extinguish the claim and dismissed the creditor’s claim. The appellate court likewise held that the creditor’s evidence did not establish such a special case, found that the claim had been validly extinguished, and dismissed the appeal (Ulsan District Court, August 17, 2023, 2022Na16284).

The appellate court pointed out, among other things, that the occupancy period under the river occupancy permit, which was essential to the business, was about to expire and the city of Gyeongju had notified that it could not be extended, and that the business transfer was unwound by the mutual rescission while a fraudulent transfer action filed by the creditor was pending (Ulsan District Court, August 17, 2023, 2022Na16284).

What was the earlier rule in South Korea?

The en banc Court summarized the earlier rule, which it called the mutual rescission rule, as follows: except in special cases such as where the debtor and the third-party debtor mutually rescind the contract without any reasonable ground solely to extinguish the claim, the third-party debtor may, even after an attachment or provisional attachment, assert against the attaching creditor that the attached claim was extinguished by the mutual rescission (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

The rule originated in a 2001 decision. The Supreme Court of Korea reasoned that a provisional attachment of a claim does not restrict the debtor’s disposition of the underlying legal relationship, so that, absent such a special case, the third-party debtor could rely on a mutual rescission against the provisional attachment creditor (Supreme Court of Korea, June 1, 2001, 98Da17930). A 2015 decision restated the same rule, citing the 2001 decision (Supreme Court of Korea, September 10, 2015, 2014Da200619).

Behind the rule was the view that an attachment does not bind the debtor’s disposition of the underlying legal relationship, as opposed to the claim itself (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578). In practice, a mutual rescission could usually be relied on, and the creditor had to show that the sole purpose was to wipe out the claim. That is why the creditor in this case lost in both lower courts. The Court’s press release described the earlier rule as leading to a uniform outcome that allowed mutual rescission after attachment in most cases.

What did the en banc Supreme Court change?

The Court held that the earlier rule must be replaced. If the debtor and the third-party debtor mutually rescind or mutually terminate the contract that gave rise to the claim after an attachment or provisional attachment has taken effect, the third-party debtor, as a rule, cannot assert against the attaching creditor or provisional attachment creditor that the attached claim was extinguished by that agreement (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

The Court also confirmed the scope of the rule. It applies where the mutual rescission occurs after a provisional attachment took effect but before conversion into a final attachment, and it applies to a mutual termination that ends a continuing contract with effect for the future. The Court overruled the 2001 decision and other decisions to the same effect to the extent they conflict with the new rule (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578). All eleven participating justices agreed.

Why is mutual rescission treated differently from statutory rescission?

The Court started from the prohibition on disposition that comes with an attachment. Once an attachment of a claim takes effect, the debtor cannot assert against the attaching creditor any act that extinguishes or reduces the claim (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578; Supreme Court of Korea, June 27, 2024, 2021Da261704).

The prohibition also applies to provisional attachments

Under the Civil Execution Act of South Korea, a provisional attachment of a claim orders only the third-party debtor not to pay the debtor, and it does not expressly prohibit the debtor from disposing of the claim (Civil Execution Act, Article 296(3)). The Court nevertheless held that the need to enforce the prohibition on disposition is essentially the same for attachments and provisional attachments, noting that it had long recognized that effect for provisional attachments (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

The prohibition is relative

The prohibition does not forbid the act of disposition or make it void. It decides, at the stage when the claim is converted into money through collection or assignment, whether the attachment or the disposition takes priority. A mutual rescission therefore remains valid between the debtor and the third-party debtor; the only question is whether it can be asserted against the attaching creditor (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

A mutual rescission is a new contract made after the attachment

The Court regarded it as clear that statutory or contractual rescission remains available after an attachment and can be asserted against the attaching creditor, because the right to rescind was reserved or inherent under statute or contract before the attachment. A mutual rescission, by contrast, is a new contract concluded after the attachment. The Court observed that it is a new agreement by which parties already bound by the attachment order effectively neutralize it, and that it is more likely than statutory rescission to be driven by opportunistic motives (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

How does the ruling fit other Korean precedents?

The Court found that the earlier mutual rescission rule did not fit the overall direction of its case law on the prohibition on disposition (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578). It pointed to three lines of cases.

Rescission after notice of a creditor’s subrogation claim

Article 405(2) of the Civil Act of South Korea provides that once the debtor has been notified that a creditor is exercising the debtor’s right by subrogation, the debtor cannot assert a later disposition of that right against the creditor. The Supreme Court of Korea has held that statutory rescission of the underlying contract may still be asserted against the subrogating creditor after such notice (Supreme Court of Korea (en banc), May 17, 2012, 2011Da87235), but that a mutual rescission may not (Supreme Court of Korea, June 28, 2007, 2006Da85921; Supreme Court of Korea (en banc), May 17, 2012, 2011Da87235). The en banc Court saw no clear reason to treat mutual rescission differently between attachment and subrogation, at least where a prohibition on disposition applies (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

Assumption of contract after attachment

Where, after a claim is attached, the contractual position in the underlying contract is transferred from the assignor to an assignee by an assumption of contract, the third-party debtor cannot assert against the attaching creditor that its contractual relationship with the assignor has ended (Supreme Court of Korea, May 14, 2015, 2012Da41359).

Designation of an additional priority beneficiary after attachment

Where the settlor’s claim to residual proceeds under a real estate security trust has been attached, designating an additional priority beneficiary reduces the attached claim and conflicts with the prohibition on disposition, so it cannot be asserted against the attaching creditor (Supreme Court of Korea, June 27, 2024, 2021Da261704).

In each line of cases, once a prohibition on disposition arises, the debtor cannot defeat the creditor by disposing of the underlying legal relationship through a new juristic act. The en banc Court saw no reason to treat mutual rescission as the sole exception (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

Is the new rule too harsh on third-party debtors?

The Court framed the issue as one of allocating the risk created by the mutual rescission. Considering the purpose of attachment, who acted and in what order, who created the risk and how, and who could prevent and control it, the Court held that between the attaching creditor and the debtor, the debtor should in principle bear that risk (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

An attaching creditor is not a party to the mutual rescission and may not even learn of it. Under the earlier rule, the time, cost, and effort that attaching creditors and creditors demanding distribution invested in reliance on the prohibition on disposition could be wasted by a later agreement between the debtor and the third-party debtor. The Court found that this undermined the effectiveness of compulsory execution (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

The Court also explained that the new rule does not put third-party debtors in an unfairly disadvantaged position, listing the following protections (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

• The third-party debtor keeps its position under the original contract. It can demand performance from the debtor and can exercise statutory rescission rights.
• It can assert against the attaching creditor every defense that arose before the attachment took effect.
• It can discharge its obligation by depositing the amount under Article 248 of the Civil Execution Act.
• At the provisional attachment stage, it can have the debtor deposit a release amount under Articles 282 and 299 of the Civil Execution Act and have the provisional attachment lifted.
• If it is compelled to perform under the original contract because it cannot rely on the mutual rescission, it may, absent special circumstances, seek restitution of the value of that performance from the debtor.

If the debtor is insolvent, the Court held that the third-party debtor, which chose to enter into the mutual rescission, must bear that risk, and it must not be shifted to the attaching creditor, who had nothing to do with the rescission (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

When can a mutual rescission still be relied on?

The Court identified three exceptions in which a mutual rescission may be asserted against the attaching creditor. The party seeking to rely on the mutual rescission must prove the exception (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

(1) Requirements for statutory or contractual rescission were met, and only the form was a mutual rescission

This covers cases where a separate ground that justifies ending the contract was satisfied but the parties used the form of a mutual rescission. The Court said this includes statutory rescission or termination grounds under the Civil Act and other statutes, grounds recognized by interpretation such as change of circumstances or a breakdown of trust, contractual grounds stated expressly or recognized by implied agreement or supplementary interpretation, and other causes such as a condition subsequent, avoidance, or withdrawal (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

(2) The attached claim consists of future installments under a continuing contract

Examples include wages under an employment contract and rent under a lease. Installments that had already accrued when the attachment took effect remain subject to the prohibition. But where the attachment covered future installments and a mutual termination ended the contract with effect for the future, the prohibition does not extend to those future installments (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

(3) Special circumstances make denying the rescission manifestly unjust

This applies where, considering the nature and content of the contract and the attached claim, the weight of the attached claim within the contract, and how the mutual rescission came about, denying the rescission solely because of the attachment would be manifestly unjust. The Court described it as a residual category for cases outside the first two exceptions, and gave these examples (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578):

• Several contracts were made as an economic and practical whole, a claim under only one of them was attached, and rescinding the other, unattached contracts requires recognizing the rescission for all of them
• The attached claim is negligible in the context of the whole contract, or arises only from an ancillary agreement
• Other circumstances in which favoring the attaching creditor over the debtor or third-party debtor would lead to a manifestly unjust result

What happens next in this case?

The Supreme Court of Korea set aside the appellate judgment and remanded the case to the Ulsan District Court (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

Because the earlier rule had to be replaced, the Court found that the legal basis for the appellate judgment was gone. It added that an exception could still apply under the new rule, but the lower court had not examined whether any exception was established (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

Whether the creditor will recover the collection amount it claimed therefore remains open. On remand, the question is whether the third-party debtor can prove one of the three exceptions. The mutual rescission in this case covered not only the business acquisition contract but every contract relating to the project, including the succession to the river occupancy permit and the change of permit holder under the building permit (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578). The Supreme Court did not rule on the creditor’s remaining grounds of appeal.

What should creditors and third-party debtors check?

Here is how Atlas Legal reviews debt enforcement and commercial disputes in light of this ruling.

If you are an attaching creditor

• Confirm the date your provisional attachment order was served on the third-party debtor. A mutual rescission after that date generally cannot be asserted against you, even if the attachment had not yet been converted into a final attachment (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).
• If the third-party debtor raises a mutual rescission, it bears the burden of proving an exception. You no longer have to show first that the rescission was aimed solely at extinguishing the claim (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).
• If the third-party debtor relies on statutory or contractual rescission, examine whether the ground existed in the contract or the law before the attachment and whether its requirements were actually met.

If you are a third-party debtor served with an attachment order

• Assume that settling the contract with the debtor by agreement may still leave you liable to pay the attaching creditor (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).
• If the contract must end, first check whether there is a statutory ground such as breach or a contractual termination clause, and keep the supporting records. Even if you use the form of a mutual rescission, an exception may apply if those requirements were met, but you must prove it (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).
• If you are unsure whether to pay, consider depositing the amount under Article 248 of the Civil Execution Act. The Court itself listed this as a protection for third-party debtors (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

If you are the debtor

• Mutually rescinding a contract with your counterparty after your claim is attached does not, by itself, avoid the attachment. If the third-party debtor pays the attaching creditor, you may face a claim for restitution of that amount (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

What does this mean for companies in IFEZ?

Foreign-invested companies operating in the Incheon Free Economic Zone (IFEZ), including Songdo International Business District, Cheongna International City, and Yeongjong International City, often sit on both sides of these situations: they hold receivables from Korean business partners, and they owe money under supply, construction, or acquisition contracts that a partner’s creditors may attach.

• When a Korean counterparty’s creditor serves an attachment or provisional attachment order on your company, an agreement with the counterparty to cancel the deal generally will not release you from paying the attaching creditor (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).
• Before unwinding a contract after receiving such an order, review whether a statutory or contractual termination ground exists and document it, since you will bear the burden of proving any exception (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).
• When your company is the creditor, a provisional attachment of your Korean debtor’s receivables now offers stronger protection against later arrangements between the debtor and its counterparty (Supreme Court of Korea (en banc), September 29, 2026, 2023Da275578).

Frequently asked questions

This article summarizes a publicly available en banc decision of the Supreme Court of Korea on whether a mutual rescission after attachment can be asserted against the attaching creditor, and it is not legal advice for any specific case. Whether an exception applies depends on the contract and on how the rescission came about, so please consult Atlas Legal about your particular situation.

About the Author

Soyoung Park | Representative Attorney

Family Law, Inheritance, Construction & Real Estate Disputes

Judicial Research and Training Institute, 33rd Class

Korea University, Department of Law

Atlas Legal | Incheon Songdo, South Korea

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