In a South Korean national tax delinquency case handled by Atlas Legal Senior Attorney Soyoung Park, a court dismissed the National Tax Service’s fraudulent conveyance action after finding the 1-year exclusion period had expired — illustrating that even the government cannot escape South Korea’s strict filing deadlines for creditor revocation claims.
Case Overview
Mr. A owed hundreds of millions of won in delinquent national taxes across eight assessments, including capital gains tax and comprehensive income tax. On August 18, 2020, Mr. A entered into a contract to sell seven parcels of forestland in Gimpo City to his own brother, Mr. B, completing the ownership transfer on August 25. During its deficit disposition process, the National Tax Service (NTS) conducted a full asset investigation and on December 21, 2020 prepared a detailed Report on the Use of Asset Sale Proceeds documenting the transaction. Despite this, the NTS did not file its fraudulent conveyance action until November 2, 2022 — more than one year and ten months after the deficit disposition date — and the court dismissed the case.
Legal Nature of the Exclusion Period: Key Distinctions from Statute of Limitations
Under Article 406(2) of the South Korean Civil Act, a creditor’s revocation action must be filed within 1 year from when the creditor became aware of the cause for revocation, and within 5 years from the date of the fraudulent act. These are exclusion periods (jeocheok giggan), not statutes of limitation, which carries critical practical consequences. No action — including sending a demand letter, filing for provisional seizure, or registering a seizure — can toll or suspend an exclusion period. Courts examine expiration ex officio, meaning even if the opposing party never raises the issue, the court will dismiss the case on its own, resulting in a procedural dismissal (kakha) rather than a judgment on the merits.
Determining When the 1-Year Clock Starts: The “Date of Awareness” Standard
The “date of becoming aware of the cause for revocation” requires more than simply knowing the debtor disposed of assets. The creditor must have recognized both that the disposition constituted a fraudulent act prejudicing creditors and that the debtor acted with fraudulent intent (Supreme Court of Korea Decision 2007Da63102, decided March 26, 2009). In practice, courts frequently treat the date of a provisional seizure application, the date of obtaining a real property registry transcript, or the date of learning that the debtor disposed of their sole asset as the trigger point. Importantly, the creditor does not need to have known about the beneficiary’s bad faith — awareness of the debtor’s fraudulent intent alone is sufficient to start the clock.
How South Korean Courts Apply This Standard to Government Agency Creditors
In this case, the court found that the NTS had already applied for a seizure registration on approximately August 24, 2020, which was rejected because ownership had already transferred to Mr. B — confirming the NTS grasped the core facts of the transaction from that date. The court determined that no later than December 21, 2020 (the deficit disposition date), the NTS had become aware of both the fraudulent act and the debtor’s fraudulent intent. Since the action was filed on November 2, 2022, the 1-year exclusion period had expired by nearly ten months. Where public institutions such as the NTS serve as creditors, the relevant date is when the responsible official actually handling the claim — not the agency head — became aware of the facts.
The 5-Year Deadline, Provisional Registrations, and Subsequent Acquirers
The 5-year exclusion period runs from “the date of the legal act,” meaning the actual contract execution date — not the registration date. Where a final registration is completed based on a prior provisional registration, the exclusion period is calculated from the date of the legal act underlying the provisional registration, absent a clear factual distinction. Creditors must also be aware that a favorable judgment against the initial beneficiary does not bind subsequent acquirers. A separate fraudulent conveyance action against any subsequent acquirer must be filed within 1 year from when the initial fraudulent act was discovered, and that deadline runs independently.
Legal Expertise
Atlas Legal has represented both creditors and beneficiaries in South Korean fraudulent conveyance litigation, including successfully asserting exclusion period expiration to obtain dismissal and filing timely revocation actions to recover transferred assets on behalf of creditor clients. Our practice spans civil litigation, real estate disputes, and tax-related asset recovery matters. For a detailed analysis of your specific situation, please refer to our blog post below or contact us directly.