Understanding Creditor’s Right of Revocation: Legal Nature, Requirements, and Case Law Analysis

1. Definition and Purpose of Creditor’s Right of Revocation

The creditor’s right of revocation is a right stipulated in Article 406, Section 1 of the Korean Civil Code, which allows creditors to seek court-ordered revocation and restoration when a debtor knowingly commits a fraudulent act by disposing of property rights to the detriment of the creditor.

The essential purpose of this system is to preserve and maintain the creditor’s common security (general security, responsible property), enabling creditor’s enforcement. In other words, it prevents the improper reduction of the debtor’s general assets due to legal acts, which would lead to insufficient repayment ability, and serves as a system to recover the debtor’s responsible property.

2. Legal Nature of Creditor’s Right of Revocation

Korean court precedents have established a clear position regarding the legal nature of creditor’s right of revocation. Courts follow the strict relative nullity doctrine, among relative nullity theories.

Key precedents include:

• Supreme Court November 10, 2005, Case No. 2004Da34573
• Supreme Court June 11, 2009, Case No. 2008Da7109
• Supreme Court June 12, 2014, Case No. 2012Da47548

These precedents establish that the revocation of fraudulent acts only has relative effect. Therefore, the standing as defendant belongs only to the beneficiary or subsequent transferee, and the debtor cannot be made a defendant.

3. Requirements for Exercising Creditor’s Right of Revocation

To exercise the creditor’s right of revocation, the following requirements must be met:

3.1 Objective Requirements

• A legal act involving the debtor’s property rights must exist
• The legal act must result in reduction of the debtor’s assets, rendering common security insufficient
• The act must constitute a fraudulent act harmful to creditors

3.2 Subjective Requirements

• The debtor must have acted with knowledge of harm to creditors (fraudulent intent)
• The beneficiary or subsequent transferee must have had knowledge at the time of the act or transfer that it would harm creditors (bad faith)

3.3 Procedural Requirements

• The creditor must file a request with the court for revocation and restoration

However, according to the proviso of Civil Code Article 406(1), if the beneficiary or subsequent transferee was unaware that the act or transfer would harm creditors, revocation and restoration cannot be claimed.

4. Revocation of Fraudulent Acts and Restoration

Civil Code Article 406(1) stipulates that creditors may request court-ordered “revocation and restoration” of fraudulent acts.

Court precedents establish:

• Revocation of fraudulent acts and restoration claims can be exercised simultaneously (Supreme Court July 22, 1980, Case No. 80Da795)
• Revocation of fraudulent acts can be claimed first, followed by restoration later (Supreme Court September 4, 2001, Case No. 2001Da14108)

4.1 Effects of Revocation

Korean civil law adopts formalism regarding property rights transfer. Therefore, revocation of a fraudulent legal act does not automatically restore property rights transferred to the beneficiary. Instead, the debtor acquires a claim for restitution of unjust enrichment.

5. Effects and Scope of Exercising Creditor’s Right of Revocation

5.1 Plaintiff and Defendant

• Plaintiff: Any creditor with general monetary claims that arose before the debtor’s fraudulent act
• Defendant: Beneficiary or subsequent transferee (the debtor cannot be made a defendant)

Each creditor meeting the requirements for creditor’s right of revocation can exercise this right independently, and multiple creditors filing lawsuits do not constitute duplicate proceedings.

5.2 Scope of Claims

• In principle, a creditor cannot exercise the right of revocation beyond the amount of their claim (Supreme Court September 4, 2001, Case No. 2000Da66416)
• In exceptional circumstances, such as when other creditors are likely to request dividend distribution or when the subject matter is indivisible, revocation may be sought beyond the creditor’s claim amount (Supreme Court September 9, 1997, Case No. 97Da10864)

5.3 Methods of Restoration

• When a real estate sale constitutes a fraudulent act, creditors may request revocation of the sale contract and restoration of real estate ownership, including cancellation of ownership transfer registration (Supreme Court October 29, 1996, Case No. 96Da23207)
• When the fraudulent act involves movable property and physical return is possible, the revoking creditor may directly request delivery of the object (Supreme Court August 24, 1999, Case No. 99Da23468, 23475)

6. Statutory Limitation Period for Creditor’s Right of Revocation

The creditor’s right of revocation is subject to statutory limitation periods as prescribed in Civil Code Article 406(2).

6.1 Starting Points for Limitation Periods

Creditor’s right of revocation has dual limitation periods:

1. Subjective period: One year from when the creditor becomes aware of grounds for revocation
2. Objective period: Five years from the date of the legal act

If either period expires, the creditor’s right of revocation is extinguished.

6.2 Nature of Limitation Period

Unlike statute of limitations, the limitation period cannot be interrupted or suspended, and courts must examine and apply it ex officio even if parties do not invoke it. This is because creditor’s right of revocation is a formative right.

6.3 Practical Considerations

• Creditors must file lawsuits immediately upon discovering fraudulent acts
• The subjective period of one year is very short, requiring prompt response
• The objective period of five years runs from the date of the legal act, even when fraudulent acts are concealed

7. Practical Considerations and Case Law Analysis

7.1 Standing as Parties

Following the relative nullity doctrine, debtors cannot be parties to the litigation. Lawsuits must be filed against beneficiaries or subsequent transferees.

7.2 Relationship with Provisional Attachment

• Since revocation of fraudulent acts has only relative effect, provisional attachments do not automatically expire unless there are special circumstances (Supreme Court October 30, 1990, Case No. 89DaKa35421)

7.3 Relationship with Enforcement

When fraudulent acts are revoked and the debtor acquires claims for restitution of unjust enrichment against beneficiaries, creditors with enforcement titles can pursue enforcement against these claims.

8. Conclusion and Practical Implications

The creditor’s right of revocation is a crucial system that prevents reduction of debtor’s responsible property while creating claims for restitution of unjust enrichment through revocation of fraudulent acts, enabling creditors to pursue enforcement.

Key practical considerations include:

1. Party composition: Beneficiaries or subsequent transferees must be named as defendants
2. Requirement verification: Proving bad faith of beneficiaries or subsequent transferees is particularly important
3. Scope of claims: Generally, revocation rights cannot be exercised beyond claim amounts
4. Enforcement: Prepare for enforcement against restitution claims after revocation
5. Limitation periods: Lawsuits must be filed within one year of discovering fraudulent acts

K&P Law Firm has recent experience successfully litigating corporate-related fraudulent act revocation cases, with extensive expertise in complex fraudulent act patterns arising from inter-corporate transactions.