Presiding Judge Yu Seung-Jeong (phonetic spelling) held that the objective of protecting public health must be balanced against the infected person’s human rights—which means privacy, as well as the right to receive medical treatment. Judge Yu noted that detection and treatment of HIV were more effective methods to arrest the spread of AIDS than simply tossing out foreigners found to carry the virus.

In the community of foreign residents of Korea, the current practice of automatic deportation for HIV-positive foreigners has tended to suppress the number of people getting voluntarily tested—because as bad as a positive result would be, for many it would be worse to be summarily kicked out of the country and returned home jobless and without health insurance coverage.

Although the story doesn’t note whether or not the case has been appealed, a matter as important as this one undoubtedly will be decided by a final judgment of the Supreme Court.

Differing (informal) standards of official enforcement against small-and-medium enterprises (SMEs) and large corporations means that there are two classes of employees in Korea: Those who have nearly no protections or recourse to law, and those who have a grip on an iron rice bowl. Multinational and foreign-invested companies are generally imagined to be flush with cash—which means you, Mr. Foreigner, are only permitted to offer the iron rice bowl.

Under the 1998 Dispatched Workers Protection Act (DWPA)—and its companion statute adopted in 2006, the Fixed-Term and Part-Time Workers Protection Act (FT-PTWPA)— there are some alternative working arrangements possible.

Today my associate Sun-Hee Kim brought me a case report from the Supreme Court of Korea establishing a useful precedent in respect of these workers: Namely, that in all cases, a non-regular employee’s status shall be converted by operation of law to regular (i.e., permanent) employment whenever an employer shall have used that employee for a continuous period of two years or more.

Most of us in the private practice of law already knew this, but a lot of HR directors and company managers have thought they could get fancy and evade the laws. However, this precedent, as a unanimous decision of the Supreme Court, makes things rather unambiguous.

In the case at hand, a company sourced dispatched workers from a worker-dispatch agency, and used those workers for a period longer than two years (over five years, to be precise). But the activities for which the workers were used were not included in the 26 types of occupations enumerated on the “positive list” established under the DWPA.

When those workers tried to claim regular-employee status, the company claimed that since the worker-dispatch was unlawful, the DWPA—and its rule limiting the non-regular status of dispatched workers to two years—should not be applicable.

Needless to say, they lost.

With this precedent in hand, we can state unambiguously: Non-regular employment in Korea is always limited to two (2) years. After two years, if the employer continues to use the services of the non-regular employee, the relationship converts to regular employment by operation of law. And this means that all the consequences of that status—in particular, employment for life—shall come into play.

As the credit crunch starts to bite in the real economy, and Korea’s position becomes more precarious, corporate bankruptcies start to mount. Today I saw the following short report in the English Chosun Ilbo:

More Companies File for Protection

An increasing number of recession-hit businesses are going belly-up.

The Seoul Central District Court on Thursday said a total of 73 companies filed for court receivership from January until October, a threefold increase from the corresponding period last year, which was 22. Ten firms filed for receivership in September and 12 in October alone, setting all-time monthly records. Small- and medium-sized manufacturers including electronics makers made up the largest portion (32 companies or 43 percent), followed by construction firms (24 companies or 33 percent).

During the IMF crisis in 1997 and 1998, 200 to 300 companies asked the Seoul Central District Court for debt write-offs each year. The number leveled off to 20 to 30 per year after 2000.

Judicial circles say the increase is a warning sign for a serious surge in bankruptcies. Companies who hit a cul-de-sac face bankruptcy proceedings unless their application for court receivership is accepted. A total of 45 businesses filed for bankruptcy with the Seoul Central District Court from January until October this year, the same number as the whole of last year.

This signals the return of bankruptcy as a practice area. Luckily [?], this will be my second go-round with a Korean recession/economic crisis.

But despite having had some experience with this, we’ll be discovering the practice area all over again. That’s because Korea’s bankruptcy laws underwent a profound change as a result of the 1997-98 Asian Economic Crisis, or as it’s known here in Korea, the “IMF Crisis”.

As part of the IMF’s US$57 billion bailout offered to Korea, the government was directed to undertake a study of the bankruptcy laws and adopt legal reforms. At our former firm Shin & Kim my partner Doil Son and I were associates on the team led by our supervising partner Yong Seok Park (he’s now left Shin & Kim too) that collaborated with Orrick partner (now at Sidley Austin LLP) Duncan Darrow, Hebb & Gitlin (now Bingham Dana) partners Richard Gitlin and Tim DeSieno, and Inha University Professor Soo-Geun Oh on the study.

At the start of the crisis, Korea had three separate (and aged) corporate insolvency statutes—the Composition Act, the Company Reorganization Act, and the Bankruptcy Act—and a statute on personal bankruptcy, all of which were hardly ever used.

Those corporate insolvency statutes were relatively ineffective for a variety of reasons, but mainly because nobody—not the insolvent companies’ management, not the creditors, and certainly not the government—wanted to allow recourse to the courts under those statutes.

Management didn’t want to proceed to a reorganization under the Company Reorganization Act (similar to US Chapter 11 reorganization) because the law provided not only for a mandatory replacement of the company’s management, but criminal prosecution of the company’s Representative Director and/or its “shadow directors” exercising control through indirect means. Existing shareholders faced the cancellation of their equity positions, which meant loss of the company.

For smaller enterprises, whose Representative Directors had also been compelled to provide personal guarantees for company debt, it was easier and simpler to walk away from the company—leaving the keys on the desk, so to speak. For big companies, it was similarly important to keep the firm away from the court.

Creditors didn’t want to see a company go into reorg because the court judgment would mean a write-down of the value of their credits, something nobody (creditors were mostly banks, because getting loans was significantly easier/cheaper for chaebol than raising capital through share or bond issues) wanted to see. Write-downs could have resulted in a wider collapse of the banking system than we saw at the time—which is why the government, too, was glad to keep companies out of formal insolvency proceedings.

As a result, major corporate reorganizations were undertaken not by recourse to the courts under the then-effective insolvency statutes, but rather mainly by means of informal “workouts” led by the creditor banks whose loans were at risk.

The informal workout regime was institutionalized in 2001 by the adoption of the Corporate Restructuring Promotion Act (CRPA), which took effect in mid-September of that same year. CRPA provided a formal structure for the lead creditor bank, or committee of creditor banks, to declare a company to be “showing signs of insolvency” and take it into a mandatory workout process managed by the lead creditor bank.

As a measure of how seat-of-the-pants was the process under CRPA, the statute had fewer than 40 articles.

Replacing the three corporate insolvency statutes, the Debtor Rehabilitation and Bankruptcy Act, a modern statute modelled on American bankruptcy law and the product of the IMF project, was approved by the National Assembly March 31, 2005 to become effective a year after its approval. The statute brought Korea a number of modern provisions, but importantly removed the punitive aspects of the old insolvency laws that made them so ineffective.

Thus, as we face a wave of corporate bankruptcies, Korea’s formal insolvency statute is new. And the court system’s experience with applying it, is just a little more than two years old. The body of precedents under the Debtor Rehabilitation and Bankruptcy Act is correspondingly brief—only 20 to 30 cases per year.

That number is pretty surprising, considering that the Seoul Central District Court has jurisdiction over the headquarters of about 90% of large businesses in Korea, and serves a population of at least 10 million.

Why so few cases? Personally, I would finger (i) a good economy, (ii) social factors discouraging resort to formal insolvency proceedings, and (iii) the lingering effects of CRPA, which was renewed summer 2007 in a surprising move by the National Assembly. We had previously expected that CRPA would be abolished, making way for the Debtor Rehabilitation and Bankruptcy Act that came out of the IMF project.

In the coming weeks and months and the spike in bankruptcies we’ll surely experience, creditors concerned about bankruptcy risks need not only to familiarize themselves with the new bankruptcy law, but also with the CRPA which will apply to the great majority of insolvency and reorganization cases.

Most of them are shocked by the absence of two concepts they take for granted in the United States: The plea bargain, and offers of immunity from prosecution in exchange for testimony. Well, over the weekend I stumbled across this summary of a speech by Prosecutor-General Lim Chae-jin, promising to introduce a plea-bargain system to Korea:

[H]is agency will study all plea-bargaining systems adopted in advanced countries to introduce one that respects human rights before making a final decision.

A future planning taskforce at the Supreme Prosecutors’ Office has reviewed a draft measure on a limited plea-bargaining system that reduces punishment when the defendant pleads guilty to charges with court approval.

What’s interesting to me is that there is already plenty of incentive in the Korean system for an accused to confess and plead guilty, notably an end to interrogation without charge or counsel which can last up to 21 days, but also including leniency in sentencing upon the inevitable conviction (criminal accused in Korea face a conviction rate greater than 99%, which means once charged, odds are overwhelming that the accused will be convicted and punished).

Case loads at the court are high, however. A few years ago, I read that Korea’s harried judges handle something like 40-50 active cases at a time. Plea bargains will move cases through the court system a lot faster, because they will resolve many cases in one 10-minute hearing instead of several, which will free up judicial resources for more complex cases.

First up, Don Kirk took a trip to North Korea to visit the site of renewed construction at Pyongyang’s Ryugyong Hotel, the ghostly unfinished shell of a 102-storey hotel the construction of which was abandoned in 1992 after the collapse of worldwide communism left North Korea in a pinch—the markets for its odd industrial products, itchy blankets and ill-fitting suits having been lost when the Soviet Union finally gave up the ghost.

The Ryugyong is a favorite of journalists and tourists worldwide, due to the building neatly encapsulating everything freaky about North Korea’s autarky.

This is a story I missed over the summer, but North Korea Economy Watch’s been following it since February.

Kirk follows Egyptian engineer Mahmoud Fawzi of Orascom Telecom, which is working to finish off construction on the hotel. Orascom, as long-term Korea Law Blog readers might recall, is one of North Korea’s biggest recent investors. Why Orascom Telecom, instead of its sister company Orascom Construction Industries? Well, it seems that Orascom Telecom provides a 3G mobile-phone network for the use of the elite, and a 105-storey communications tower would provide great line-of-sight to nearly everywhere in the capital.

Methinks the project of “finishing” the hotel involves the installation of cladding over the bare top floors, and fake windows—maybe to include interior lighting, maybe not—over the rooms.

Orascom, by the way, can also provide those North Korean cadres with roaming service in Zimbabwe. They seem to have a long-term vision over there at Orascom.

Next up, South Korean portal champion NHN, operator of the nigh-unstoppable Naver. Its Chinese strategy is discussed, along with a story that reminds me, no matter how difficult it seems to do business in Korea, we’ve come a long way baby:

NHN sent Lee to China in 2003 to start a joint venture that planned to bid for the right to sell the tickets for the Beijing Olympics. But the Chinese partner stole hundreds of thousands of dollars from the venture and hired thugs to break into the office and steal more assets. He got into a fight with the thugs, fled by car and was chased through the city before escaping and going into hiding for ten days. Says Lee, sourly: “Those were fun days.”

As it happens, SKY schools also have a firm grip on the legal profession—especially the judiciary and prosecution.

Earlier in the week, a reader (thanks, reader!) forwarded a link to the execrable Korea Times (yeah, thanks a lot, reader…) piece describing findings announced by National Assemblyman Lee Chun-seok. However, I got a little busy and didn’t get around to posting it. Plus, even though the execrable Korea Times is in English and therefore more accessible to the Korea Law Blog’s primarily English-speaking readership, I don’t like the paper and dislike linking to it so much.

So I was delighted to see that the guys at the estimable Korea Beat weblog (recommended by your Uncle B!) had gone to the bother of translating a slightly better Yonhap News piece on the same topic. Korea Beat editorializes “the situation in South Korea appears to be almost ludicrous”.

According to the Yonhap story, of the 5919 new lawyers admitted in the six years from 2002 to 2007, SKY graduates comprised 3662—almost 62%. Three other Seoul universities—Hanyang University, Ewha Womans University, and Sungkyunkwan University—added nearly 1000 more new lawyers to the mix in that period, making the “top 6” Korean universities the source of 78% of new lawyers minted in that six-year period.

Note the diminishing returns, and see how your chances of grabbing the brass ring fall even within the “top three” schools, according to Yonhap:

The so-called SKY schools, SNU, KU, and YU, accounted for 2,010, 990, and 662 successful applicants respectively, 61.9% of the total.

Hanyang, Ewha, and SKKU accounted for 332, 263, and 361 successful applicants respectively.

In particular, the selection of new judges (in Korea, judge is a first legal job for fresh admittees to the bar) and prosecutors seems to be at least partly driven by school ties. The winners at the Judicial Research and Training Institute go into government service, while the “losers” (mind you, still fantastically talented people having survived the Korean bar examination) have to work for clients. Quoth the Korea Times:

Of 1,205 new judges appointed between 2003 and 2008, nearly 80 percent or 964 graduated from the “SKY” universities…said Rep. Lee…citing data from the Ministry of Justice.

Of 780 prosecutors designated during the same period, 546 were from these schools, accounting for 70 percent in total. The lawmaker added that roughly 60 percent of the 1,000 people who pass the Korean bar exam each year are also SKY certificate holders.

Clearly, if you’re a Korean kid aspiring to the legal profession, which itself is protected by a massive barrier to entry in the bar examination (which only about 2% of applicants pass), admission to a top Korean university is much more critical than it is for aspirants in other legal markets. But it ain’t just for future lawyers, says the Korea Times:

Such a “SKY-take-most” phenomenon is not confined to the legal circle. It has also played out in the field of business, the administration and journalism.

For instance, of 285 top government officials including ministers, vice ministers, and presidential secretaries, 61 percent or 175 are SKY graduates. Seven out of ten chief executive officers of top 100 Korean companies by market value in 2007 graduated from one of the three colleges.

So as you can see, getting into a SKY school is like being tapped for the Mob. You’d think that once in, and having passed the bar examination, and been selected to join the court, a young lawyer could breathe easy. You’d be wrong:

Such SKY-dominant atmosphere invites invisible discrimination against those with what they call “inferior academic background.”

A former judge from a non-SKY university said, “School of origin appears to be playing a minor role in choosing those to be promoted in judicature. However, it’s very, very important indeed.”

Of 14 Supreme Court judges here, Kim Ji-hyung is the only one with a non-SKY academic background. His alma mater is Wonkwang University in Iksan, North Jeolla Province.

Another former judge added, “Competition among SKY graduates is also very intense. Some form an unofficial alliance with colleagues with identical backgrounds to take an upper hand in promotion.”

This means the Seoul National University guys gang up on the Korea and Yonsei guys, who in turn would gladly knife the others to get ahead.

Despite the selectivity, or perhaps because of the selectivity, it doesn’t appear that the judicial system comports itself in accordance with the high standards supposedly advanced by keeping the hoi polloi away.

Choi is the first blind person in the history of the bar examination to pass the written test. After petitioning the Ministry of Justice for accommodations for his disability—and offering the precedent of Japan having allowed non-sighted candidates to receive extra time and audio assistance (since they can’t read)—Choi was allowed to take the examination. Previously, non-sighted candidates operated under the disadvantage of not being able to see the examination papers.

Here the Korea Times gets a little ahead of itself, saying that Choi will be a lawyer if he passes the interview. That’s not correct—the two-year JRTI course, which is admittedly pretty hard to fail, given that the students are all extremely talented—is a prerequisite to admission to the bar. So if he passes the oral interview (results will be known on Tuesday the 28th, and are sure to be reported) Choi will be looking for work as a lawyer around December 2010.

Korea has heretofore not been a particularly disability-friendly society. Last year, a proposed anti-discrimination law stumbled over its inclusion of homosexuality as a protected class, and so there’s still no express anti-discrimination statute here, and no analogue to the Americans with Disabilities Act (ADA) requiring reasonable accommodations for disabled persons like Choi.

What’s interesting to me is that the Korean legal profession, because it pays well while not being particularly physically-demanding, has traditionally always had an overrepresentation of people with physical deformities (club foot, strawberry mark on the face, etc.). The amount of time, and intense focus, required to adequately prepare for the bar examination has tended to select for nerd and/or klutz qualities (ask me about my two years playing tee-ball!)—getting bullied or excluded, and wanting to “get even” (success is the best revenge) or to “be somebody”, has prompted a lot of young Koreans to really study hard for that exam. It’s surprising to me that until now, there hasn’t been any blind guy.

One detail of the story that’s not in the Korea Times, but which I found in the Chosun version (good human-interest reporting!), is that Choi gets by with the help of friends (you know there’s a good woman among those “friends”—or at least there will be in the movie version) and hard-working, self-sacrificing parents working as day laborers in a countryside town. It’s a poor-kid-overcoming-every-obstacle story, the kind everyone likes. As for me, I’m rooting for Choi and would look forward to working with him. I hope on the 28th to be noting his success at passing the oral interview.

Recently, among other events, we’ve been lucky enough to work on one of the major outbound investment deals: Hwang Mok Park PC advised Korean fishery company Dongwon Enterprise Co., Ltd. on the cross-border acquisition and financing of Dongwon’s US$360 million acquisition of US tuna brand StarKist from Del Monte Foods. Transaction finance was supplied by a syndicate of Korean and international banks arranged by Korea’s Hana Bank; the closing took place at the beginning of October, in the teeth of the global credit crunch. HMP’s team was led by corporate and securities partner Doil Son. The Hong Kong office of Simpson Thacher & Bartlett LLP acted as international counsel to Dongwon.

Where we say that the closing took place in the teeth of the global credit crunch, we’re not fooling: This deal was due to close at the end of September, and from around the 20th things started to go pear-shaped with the syndicate arranged by Hana Bank. The scramble for replacement finance in the StarKist deal, due to nobody’s fault, meant very long days and nights for our team. But especially, my friend Doil worked like a dog and it bears mentioning: he did great work for Dongwon and I’m proud to work with a lawyer like him.