Court Cracks Down on Bankruptcy Fraud

After finding out that an owner of company hid the assets of his company in the process of composition and led the company to bankruptcy, the court accused him for bankruptcy fraud.

It is the first time ever that a court has accused the owner of a bankrupt company for bankruptcy fraud.

The accused is the former owner of Dodo Company who is identified as Y (48). His company was doing well with famous advertisement of its product, “Palgantong powder,” which used well-known female entertainers.

Owner Hid Company Assets, Making the Company Bankrupt-

Overseeing this company’s case since January 2003, the 12th Bankruptcy Division of the Seoul District Court (Chief judge: Lim Chi-yong) sensed something was fishy this May. While a company owner going through a re-composition period generally strives to revive the company, the Dodo Company saw its financial situation worsen in the composition process.

The president of the company was changed in the re-composition process, but the situation did not get better. The court interrogated the new president several times. It is rare for the court to directly interrogate a company president. The president confessed in the multiple rounds of investigation, “Actually, I am a “paper president” who receives money and follows instructions from the former president to process the company to bankruptcy.”

The court immediately canceled the re-composition and declared bankruptcy. It appointed Yang Kyung-suk, a prosecutor-turned-lawyer as the bankruptcy trustee.

Yang studied the company thoroughly for five months, as if it was an investigation, and obtained circumstantial evidence that Y hid company assets, including trademark rights and raw materials for cosmetics. From Yang’s reports, the court decided to accuse Y on six charges, including violations of the bankruptcy law, with the Seoul Central District Prosecutors’ Office last month.

Court: “No More Bankruptcy Fraud”-

In general, the court does not engage in affairs associated with a company in the re-composition process.

In this sense, this case signals that the court is willing to play a more proactive role in reviving insolvent companies and realizing economic justice. The court demonstrated its will to actively deal with company owners who inflict damage on numerous creditors by hiding assets from a company that they should revitalize. The appointment of a former prosecutor as the trustee in bankruptcy also reflects this will.

The 12th Bankruptcy Division of the Seoul District Court is solely in charge of the composition and bankruptcy of corporations. After Lim was appointed as the chief judge in February, judges of the court became busier. The judges check situations by personally visiting 50 corporations in the composition process, and sometimes interrogate company owners directly.

Ji-Seong Jeon verso@donga.com wiseweb@donga.com