Prior to the commencement of the rehabilitation procedure, Company A received an overpayment of KRW 3.3 billion (approx. USD 2.5 million) from the contractor due to errors, etc. during the expressway construction process. The main issue of this case was determining whether the overpayment should be recognized as an authorized bond under the Debtor Rehabilitation and Bankruptcy Act and be fully repaid, or whether it should be recognized as a rehabilitation claim and be repaid according to the reduced repayment rate under the rehabilitation plan. DR & AJU successfully persuaded the Supreme Court that this case was a rehabilitation bond claim for the return of unjust gains rather than a claim for the return of advance payments. Accordingly, the Court ruled for the reduced repayment rate of the rehabilitation plan to apply to the repayment of overpayment (Supreme Court Decision 2018Da223139 Decided December 24, 2019).
Similar cases frequently occur in the construction industry, where the client overpays the contractor due to an error, etc., but the contractor undergoes a rehabilitation procedure. This Decision clarifies the legal principle of rehabilitation claim under the Debtor Rehabilitation and Bankruptcy Act by ruling that claim for the return of advance payment which had been paid according to the procedures specified in a contract is an authorized bond under the Debtor Rehabilitation and Bankruptcy Act, but the claim for the return of a simple overpayment, such as the case above, corresponds to a claim for return of unfair gains. Although Company A lost the first and second trials despite being represented by a major law firm, it was able to overturn the judgment in the Supreme Court with DR & AJU’s counsel, and the case was reversed and remanded.
