This is an analysis of a past case in which Managing Partner Soyoung Park countered a sole proprietor’s attempt to evade debts through incorporation, securing a judgment from the Suwon District Court Ansan Branch that recognized succession of contractual status and ordered the corporation to pay the full unpaid concrete pump truck usage fees plus delay damages.
Case Overview
Our client, a concrete pump truck leasing operator, leased equipment to a building construction site in Ansan City. The counterparty was initially a sole proprietor, but during construction, he established a corporation and became its representative director. He then refused to pay tens of millions of won in usage fees, claiming that “the corporation and the individual are separate entities, so the corporation bears no responsibility for debts incurred during the sole proprietorship period.”
Key Legal Issue – Debt Attribution After Corporate Conversion
The central issue was whether the pump truck lease obligations entered into during the sole proprietorship period were succeeded by the newly established corporation. While Korean Commercial Act Article 169 provides that individuals and corporations are, in principle, separate legal entities, courts may recognize succession of contractual status when the same person substantially controls the corporation while maintaining existing business relationships.
Managing Partner Soyoung Park’s Litigation Strategy
Attorney Park built a comprehensive evidentiary case establishing that the same equipment continued to be used at the same construction site after incorporation, that partial usage fees were paid under the corporation’s name, that the sole proprietor personally signed construction equipment lease usage confirmations, and that witness testimony corroborated the sole proprietor’s direct involvement. The corporation’s partial performance of existing debts proved to be the decisive evidence for establishing contract succession.
Court Ruling – Succession of Contractual Status Recognized
The Suwon District Court Ansan Branch ruled that “it is reasonable to conclude that the party who entered into the pump truck lease agreement with the plaintiff was A, and that A’s lessee status was directly succeeded by the defendant company established by A thereafter.” The court ordered the defendant corporation to pay the full unpaid usage fees plus delay damages, making clear that merely establishing a corporation is insufficient to escape pre-existing debts.
Practical Significance of the Ruling
This ruling is a significant precedent that blocks attempts to abuse corporate conversion as a debt avoidance mechanism and strengthens creditor protection. It confirmed that even partial performance of existing debts by a corporation constitutes strong evidence of contract succession. Creditors dealing with sole proprietors should ensure their contracts include succession clauses for potential incorporation and secure documentary evidence such as signed usage confirmations for each transaction.
Legal Expertise
Atlas Legal has extensive experience in construction and real estate disputes, contract succession issues, and piercing the corporate veil litigation. The firm provides comprehensive legal services for creditor protection, including strategic responses to debt evasion through corporate conversion, construction equipment lease disputes, and fraudulent conveyance actions.