“Critique of ‘inducing debt investment in virtual currency’, denial of the rehabilitation procedure… Creditors are also damaged”

The legal community opposes the controversy over the rules of the Seoul Rehabilitation Court

(Seoul = Yonhap News) Reporter Hwang Jae-ha = As the Seoul Rehabilitation Court, the only rehabilitation and bankruptcy court specialized in Korea, prepared business standards to calculate the amount to be repaid by debtors from the beginning of this month, it was decided to exclude losses from investment in stocks and virtual currencies. Criticism of ‘encouraging debt investment (investment by borrowing money)’

Considering the fact that the same judgment is applied to other types of assets other than virtual currency, the voice of an unavoidable measure is weighted in the legal community when considering equity.

Seoul Rehabilitation Court

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◇ Court “Measures to support debtors who have suffered investment failure”

According to the legal community on the 5th, the Seoul Rehabilitation Court implemented the ‘Seoul Rehabilitation Court Practice Rule No. 408’ from the beginning of this month and explained its contents, saying, “In determining the total amount of repayment, the amount or size of the loss is not taken into account.”

Specifically, the purpose of the rule is not to consider it when determining the ‘liquidation value’ rather than the reimbursement amount. This rule stipulates that “the loss incurred by the debtor’s investment in stocks and virtual currency shall not be taken into account when calculating the total amount of dividends the debtor will receive when the debtor goes bankrupt.”

There is a principle of guaranteeing liquidation value in individual rehabilitation procedures. The principle is that if a debtor goes bankrupt, the total amount (repayment amount) that can be repaid through individual rehabilitation procedures should be greater than the liquidation value, which is the total amount that creditors will receive as dividends.

This is to the effect that the debtor should be able to pay back even a little more money to the creditors than in the case of bankruptcy by going through the rehabilitation procedure.

For example, suppose that A, who owns 10 million won, borrowed 100 million won and invested all in virtual currency, and then the value plummeted to 1 million won, according to this rule, A’s liquidation value is 110 million won. Not ten million won, but 11 million won.

If the court determines that the total repayment amount that can be repaid based on the present value is higher than the liquidation value of 11 million won, the court will authorize the rehabilitation plan. Person A receives only the repayment amount according to the rehabilitation plan, and the remaining debt is forgiven.

Virtual Currency (CG)
Virtual Currency (CG)

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◇ “It encourages debt investment” “If the value of virtual currency rises, only creditors lose”

As the Seoul Rehabilitation Court disclosed these rules, criticism is growing mainly in the online community. The main argument for criticism is why the courts come forward to bail out people who have invested in debt.

Those who do not invest in highly volatile assets such as virtual currency or who invest only within the limits of their own assets and bear the losses themselves are bound to feel deprived of having their debts forgiven.

Some point out that it is absurd to forgive debts because of a decrease in the value of those who have invested in debt, even though they have made great profits during the period when the value of virtual currency has risen, even though they have no obligation to return the profits to society.

Even if the value of the virtual currency held by the debtor rises after the debtor’s rehabilitation plan is approved, the part that the creditor cannot recover it is also a subject of criticism.

Even if the value of the virtual currency held by A rises to 100 million won or more after the rehabilitation plan is approved by A, the amount that A must repay does not change.

Personal Bankruptcy (PG)
Personal Bankruptcy (PG)

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◇ Legal circle “It is the same for other assets… If the rehabilitation process does not go through, the creditors will also suffer.”

In the legal circle, the opinion that such criticism stems from a misunderstanding of the rehabilitation procedure is predominant.

A lawyer at a Seocho-dong law firm pointed out, “If the liquidation value is calculated based on the principal of the investment, it should be considered that the rehabilitation procedure is virtually impossible.”

Going back to Mr. A’s case, assuming that the amount of money he can repay with his income in the future is 50 million won in present value, if he sees 110 million won as the liquidation value, he must go bankrupt and 11 million won is the liquidation value. If accepted, the rehabilitation process will be initiated.

In the former case, the creditor will recover 11 million won of the current property owned by A, and in the latter case, the creditor will receive 50 million won over time.

“For other types of assets, it is taken for granted that liquidation values ​​are based on present values,” said a high court judge who worked in the district court bankruptcy department. We have established a new standard, but this rule is not new.”

Judge Lee added, “The criticism that is coming out now can be equally applied to other assets, and if we accept the criticism as it is, the rehabilitation procedure itself should be eliminated.”

An official from the Seoul Rehabilitation Court explained the background, “For other assets, it is common to exclude the loss from the liquidation value, but for stocks, there were cases where the liquidation value was assessed based on the investment principal according to the court.”

He added, “The purpose of the newly introduced rule is to unify such conflicting judgments and apply the same standards to virtual currencies.”

In response to the point that the value of virtual currency may rise after approval of the rehabilitation plan, the official explained, “In general, the amount of repayment according to the rehabilitation plan is large, so it is difficult to cover the debt without selling the virtual currency held by the debtor.”

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