Lawsuit to revoke a fraudulent conveyance

Revocation of fraudulent act and compensation for value

A 'fraudulent act' means an act that harms creditors. For example, when a debtor donates property to a third party (beneficiary) to avoid repaying a debt, such an act constitutes a fraudulent act.

In such a case, the creditor may revoke the legal act between the debtor and the beneficiary (e.g., donation) and claim restoration to preserve the claim.

However, court precedents hold that 'converting real estate, the debtor's only property, into cash that is easy to spend constitutes a fraudulent act unless there are special circumstances,' and thus recognize revocation even when the debtor sells real estate for a fair price. This is because the debtor is highly likely to harm creditors by spending the sales proceeds arbitrarily rather than using them to repay debts.

Meanwhile, when revoking a real estate sales contract, the principle is to claim cancellation of the ownership transfer registration as restoration, but if a mortgage established before the sales contract was later extinguished, the creditor may claim compensation for value (money) from the beneficiary.

Recently, attorney Joo Youngjae achieved a case where a real estate sales contract was revoked as a fraudulent act and compensation for value was received. We will introduce this case.

Facts of the case

The plaintiff (the client) purchased farmland from Company A around December 2005, paying approximately 100,000,000 Korean won as the purchase price. However, Company A, not being an agricultural company corporation, could not own farmland, and accordingly, the plaintiff also could not acquire ownership. Therefore, the plaintiff filed a lawsuit against Company A for return of the purchase price. During the lawsuit, around March 2015, Company A sold its only property, the land, to the defendant.

Later, in December 2018, the plaintiff obtained a favorable judgment, which became final around that time, but Company A had no remaining executable property.

Having won the case with difficulty but unable to recover the purchase price, the plaintiff came to attorney Joo Youngjae and asked him to review all possible legal measures.

Attorney Joo Youngjae's assistance

After meticulous case analysis, attorney Joo Youngjae concluded that the real estate sales contract in March 2015 constituted a fraudulent act and filed a lawsuit against the defendant for revocation of the fraudulent act and compensation for value.

In the lawsuit, the defendant raised various preliminary objections and also argued that Company A had sufficient ability to repay its debts at the time of the real estate sales contract. However, attorney Joo Youngjae, through requests for factual inquiry and submission of financial transaction information, proved that Company A was in a state of excess debt at the time of the real estate sales contract, and argued in detail that all other requirements for revocation of a fraudulent act were satisfied.

Court's decision

The court largely accepted attorney Joo Youngjae's arguments and rendered a judgment revoking the fraudulent act and ordering compensation for value for the amount obtained by subtracting the secured debt of the mortgage established on the real estate from the amount of the preserved claim.