If you are dealing with unpaid receivables from a Korean company or individual, recovering these debts can be challenging.  Often, Korean counterparts may ignore communication, delay payments, or cite unacceptable reasons for non-payment.  Some may even rely on the assumption that the geographical distance, legal system differences, and language barriers make it difficult for foreign creditors to pursue debt recovery in South Korea.

This is when hiring an experienced Korean debt collection attorney becomes essential.  A knowledgeable Korean business and litigation lawyer can guide you through the debt collection process under Korean law, from initial steps to enforcing claims.

In this article, our Korean lawyer explains the essential legal steps that foreign creditors can take to recover debts or unpaid receivables effectively. 

Have a Korean Attorney in Your Legal Team from the Early Stage of Dispute

One common mistake foreign creditors make is contacting Korean law firms too late, sometimes only at the final stage of a dispute.  This can have serious negative consequences for the entire debt collection process in Korea.  Foreign creditors risk missing key legal prerequisites for making claims under Korean law, losing vital evidence, or unintentionally making statements during negotiations that could harm their case.

When handling legal disputes in Korea, early involvement of a Korean lawyer is highly recommended.  The unique challenges in Korea—such as high rates of nonpayment, exploitation of foreign creditors’ unfamiliarity with Korean law and business practices, and even fraudulent solicitations—underscore the importance of having a Korean legal expert from the beginning.

We understand that hiring a foreign legal professional can be costly, and Korea is no exception.  To support clients affordably, our office offers a legal process outsourcing program—a way to have a Korean lawyer consistently on your legal team at minimal cost.  This program allows foreign businesses to manage debt collection and legal disputes in Korea with continuous local support.

Read Further: Outsource the Legal Department for Your Business in Korea

Conducting Credit Investigations

In debt collection, the first and most crucial step is accurately assessing the debtor’s ability to repay.  This requires a thorough investigation of the debtor’s financial condition, including the location and status of any assets.  A Korean lawyer can skillfully utilize information on the debtor to gain a picture of their asset status.

Additionally, for foreign companies or individuals holding “commercial claims” (claims arising from business transactions) against Korean companies or individual business owners, it is possible to obtain the debtor’s credit investigation report through Korean credit information agencies.  This information typically includes the debtor’s financial details, assets, and property ownership, which can help in evaluating repayment capacity.  However, in cases involving general civil claims rather than commercial claims, a court judgment is required to get the credit investigation report.

Seizing a Debtor’s Assets in Korea

One highly effective method for debt collection in Korea is to seize the debtor’s assets before initiating a lawsuit or even beginning negotiations.  Asset seizure minimizes the risk of receiving nothing after obtaining a money judgment, as many Korean debtors may attempt to hide their assets when they anticipate a collection effort. 

Seizing assets requires a thorough legal review and consideration of the business relationship with the debtor.  In Korea, foreign creditors can seize a debtor’s assets either before or after filing a lawsuit by obtaining a provisional attachment order from the court. This preliminary attachment secures the debtor’s assets, ensuring they are available for eventual collection if a judgment is issued in the creditor’s favor.

Read More: Provisional Attachment of Assets under Korean Law – How to Secure Your Monetary Claim Effectively in Korea

Even if your case is pending in a foreign court, you may still be able to obtain this provisional attachment in Korea.

Read More: Does Korean Court issue a Provisional Attachment Order in Support of the Proceedings in the Merit in Foreign Courts?

Send a Formal Demand Letter from a Korean Lawyer

A commonly effective first step in the debt collection process is sending a formal demand letter issued by a Korean lawyer or law firm.  This step, while optional, can lead to a voluntary repayment by the debtor in Korea, as receiving an official demand from a Korean legal professional often signals serious intent.

A demand letter from a Korean lawyer is particularly effective when the debtor assumes that foreign companies or individuals have limited options for collecting debt in Korea.  By engaging a local attorney to send a formal demand, creditors can dispel this misconception and encourage a prompt response.

File a Request for Payment Order with the Korean Court

An alternative to a full lawsuit, filing a payment order with the Korean court offers a faster, more convenient, and cost-effective way to obtain a judgment.  The Korean court often issues payment orders readily, as this process is a summary proceeding that does not require an initial hearing with the debtor.

If the debtor does not object within two weeks of receiving the order, the payment order holds the same authority as a final and conclusive judgment. Should the debtor raise an objection, however, the court will advance the case to a formal trial, leading to a money judgment if the creditor prevails.

File a Lawsuit

If the debtor continues to refuse payment after receiving a formal demand letter, you have no choice but to file a lawsuit.  Filing a lawsuit allows creditors to obtain a legally enforceable court judgment for the debt.

Before proceeding, as noted above, it is advisable to verify whether the debtor has sufficient assets in Korea to satisfy a potential judgment.  

Enforce Your Monetary Judgment through Compulsory Execution

Once you have obtained a final and conclusive court judgment in Korea, if the debtor still refuses to pay, you can proceed with compulsory execution against the debtor’s assets.  This enforcement measure enables creditors to collect the debt directly from the debtor’s property in Korea.

If you already possess a final money judgment from a foreign court, you can still enforce it in Korea by obtaining an execution order from a Korean court. 

Read More: Recognition and Enforcement of Foreign Judgments in South Korea

Register a Defaulting Korean Debtor for Public Notice

In Korea, creditors can apply to have defaulting debtors listed on the defaulting debtor registry if they fail to settle their debts within six months of the court-registered money judgment.

By registering a debtor, creditors can leverage additional pressure, as this public registry is shared among financial institutions, potentially resulting in the suspension of the debtor’s financial transactions.

File a Criminal Complaint against a Defaulting Korean Debtor

In Korea, creditors sometimes take the extra step of filing criminal complaints against non-paying or defaulting debtors.  This approach is common among Korean creditors, including commercial banks accusing defaulting credit card customers of fraud, or business partners filing criminal complaints for misappropriation of joint venture assets.

Fraud is a frequent legal basis for such complaints.  For instance, if a Korean debtor entered a financial agreement without the necessary resources or with no intent to fulfill their obligations, this may constitute fraud under Korean criminal law.  Criminal complaints can lead to penalties such as fines or imprisonment if the accusations are upheld.

Often, upon receiving a criminal investigation summon by the Korean police, debtors seek to settle by proposing voluntary payments to the creditor, as they may need a settlement agreement to reduce penalties or avoid charges altogether.

Filing a criminal complaint may be an effective last resort against debtors who attempt to evade payment or hide assets to avoid civil judgment enforcement.

File for Bankruptcy or Rehabilitation Proceedings Against the Debtor

If a Korean debtor is found to be insolvent—unable to repay all debts—or in a state of negative equity where liabilities exceed assets, foreign creditors can petition the Korean court to initiate bankruptcy proceedings against the debtor.

Once the court declares bankruptcy, a court-appointed trustee liquidates the debtor’s assets and assesses the creditors’ claims, determining their validity, amounts, and priority.  Distribution then occurs based on a fair, legally prescribed order.

For foreign creditors, initiating bankruptcy proceedings in Korea can be advantageous when collecting debts individually from the debtor’s Korean assets proves challenging.  Through court-managed liquidation, the debtor’s assets are pooled and distributed equitably among creditors.  Additionally, the uncollected portions of debt from the Korean bankruptcy process may qualify as bad debt expenses, potentially providing tax advantages as deductible losses.

Alternatively, if continuing the debtor’s business operations and achieving debt repayment through corporate rehabilitation appears more beneficial, foreign creditors can file for rehabilitation instead of bankruptcy.  Under court oversight, a court-appointed trustee manages the rehabilitation plan, and creditors receive payments according to the approved plan’s terms.

What If the Korean Company Has No Money?

In Korea, a corporation and its shareholders, directors are separate legal entities.  This means that claims against a Korean company cannot typically be pursued directly against its shareholders or directors.  However, there are two notable exceptions.

(1) Directors’ and Auditors’ Liability for Damages

An exception exists under Korean corporate law, where directors and auditors may be held jointly liable for damages to third parties if they neglect their duties through intentional misconduct or gross negligence.

Korean courts have upheld this rule in cases where directors, despite the company’s insolvent state, engaged in high-risk borrowing or reckless transactions.  In such cases, creditors have been able to successfully claim damages from directors and auditors, offering a pathway to hold them accountable when a company’s financial health deteriorates.

(2) Piercing the Corporate Veil

Another exception is the doctrine of piercing the corporate veil.  This principle applies when shareholders exploit the corporate structure to gain illicit or unjust advantages.  In such cases, courts may disregard the company’s separate legal entity status, making shareholders directly liable for the company’s debts.

According to Korean case law, the application of this doctrine requires clear evidence that controlling shareholders or directors used the company’s legal status to pursue personal gain or evade debts.  Examples include cases where a company’s funds are diverted for personal use or assets are intentionally transferred to hinder creditors’ claims. 

When the corporate veil is pierced, creditors gain the right to pursue claims directly against the shareholders or actual controllers of the company, thereby legally blocking attempts to avoid corporate debts.

Conclusion

Navigating the process of debt collection in Korea can be challenging due to differences in legal systems, language barriers, and the unique aspects of Korean business culture.  By working with a knowledgeable Korean debt collection attorney, you gain access to local expertise and a comprehensive strategy tailored to your case.  From preliminary demand letters to court enforcement and asset seizure, our approach is designed to secure the best possible outcome for foreign creditors facing unpaid claims in Korea.

Why Choose Us?

• Experienced, Bilingual Attorneys: Our team includes qualified, English-speaking Korean lawyers who understand both local and international business practices, bridging the gap in communication and legal knowledge.
• Comprehensive Legal Support: We provide end-to-end support, from initial consultation and debt assessment to asset seizure and court enforcement, ensuring no step is overlooked.
• Transparent and Effective Strategy: We tailor our approach based on your unique needs, offering clear guidance and proven strategies to maximize debt recovery.
• Dedicated to Foreign Clients: Our firm specializes in representing foreign creditors and has a track record of successful outcomes in complex debt collection cases in Korea.

If you have any questions about debt collection in Korea and need expert guidance, click the contact button below to speak directly with an experienced, English-speaking Korean lawyer.  Our team is here to provide reliable support at every step.

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Because of the generality of this update, the information provided herein, which may or may not reflect the most current legal development, may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.