What to Do When You Have to Sue: Attachment Orders Are Your Friend
by Brendon Carr
SiGong Law’s KoreaLaw.com has a couple new posts up since I last recommended people visit this resource, and one of them is on a topic which I had decided to write about here. Great minds think alike, I guess. Or perhaps the universe of commercial problems is small enough that good commercial lawyers end up talking about the same things.
Anyway, check out Filing Lawsuit in Korea: Overview, then come on back to Korea Law Blog for more. I actually have some differences of opinion with KoreaLaw.com in respect of litigation over commercial claims, and offer the following additional points:
Demand Letters Usually Hurt the Foreign Creditor. That doesn’t mean the creditor should not have communicated with the debtor in no uncertain terms about the existence of a debt or other obligation. However, concrete threats—such as “We will be forced to commence litigation” or “I have now engaged the law firm of So-and-So to handle this matter”—actually have strong potential to hurt the foreign claimant’s actual ability to enforce rights, because the closer that foreigner is to being able to really do something, the more incentive there is to hide assets from litigation.
Korean law is exceptionally weak on pursuing assets which a party may have hidden or fraudulently conveyed to escape creditors, so the best thing to do is to catch those assets before they can be transferred. To do that, it’s best not to give too many warnings you’re coming.
Now, this tidbit of advice doesn’t apply if you’ve already got good security in place—for example, a mortgage on property, or a bank guarantee, or a standby letter of credit (L/C). If you’re holding good security, huff and puff all you want. But for most people who contact us, who generally are completely unsecured in their position, I recommend against any law-firm demand letter at all.
Koreans aren’t impressed by the lawyer’s demand letter anyway. Until the writ shows up in their mailbox, it’s all hot air to them.
Learn From the Submarine Service. Submarines don’t announce their presence: When it’s time for combat, they get in place silently, then let ‘em have it. Same goes for you. My advice, therefore, is to first do an asset search (a good starting point is a Dun & Bradstreet/National Institute of Credit Evaluation report—available domestically through NICE or internationally through D&B). It’s in fact recommendable to do this at the commencement of any credit relationship, but at this point we’re past that.
Once you know where the assets are, then freeze the assets by application for a pre-judgment attachment. Pre-judgment attachment applications are an ex parte process that takes place without the participation of the party whose assets are being attached—this is truly a “silent strike”.
Once frozen, then it’s possible to approach the opponent from a position of strength. Frozen bank accounts and an attachment on real properties tends to focus the discussion quite a bit.
Pre-judgment attachment requests require that we prove (i) the existence of a claim or controversy (i.e., the basis for the attachment), and (ii) identify the asset with some specificity. This latter requirement can be burdensome: If we don’t know, for example, where the target keeps its bank accounts, it’s not possible to attach those accounts.
And pre-judgment attachment requests do require the petitioner to provide substantial security (or “bond") in the form of cash on deposit with the court, or a guarantee-insurance policy from Seoul Guarantee Insurance Corporation. The bond amount would range from 10% to 40% of the claim amount (usually 20-25%) at the discretion of the court; the choice of whether all-cash, guarantee insurance, or some combination of those is also up to the discretion of the court.
Many would-be foreign litigants shy away from making an attachment, because they fear somehow losing their bond. After all, a security deposit is offered on the condition that it could be forfeited. Don’t get too caught up in that possibility: The security deposit is only forfeited in the case that the court finds there was an abuse of right in the attachment application—in other words, there was no real claim or controversy to argue over. Nobody with a real claim has any risk of forfeiting the bond.
Still, in terms of tipping the balance of power back in your favor, the pre-judgment attachment cannot be beat. Don’t let assets get squirreled away from the grasp of an attachment order by rattling your saber prematurely.
UPDATE 8/24: Today a colleague brought me Sean Hayes’ “Lex Pro Bono” column in the Korea Times ”Preliminary Attachments Encourage Settlements”. Having seen KoreaLaw.com, and this very entry on Korea Law Blog three weeks before Sean published, the content is strangely familiar. Sean’s article, which presents a question supposedly from a Hong Kong exporter who’s been stiffed by a Korean customer, makes the same recommendation as KoreaLaw.com’s earlier piece and this weblog entry, except that Sean repeats the same recommendation re: demand letters that I differed with above.
I’d like to forcefully restate my objection to the attorney demand letter. In Korea, stealth is absolutely vital to preservation of assets. Announcing that you’ve engaged a law firm before assets can be attached amounts to blowing the starter’s whistle before you’ve got your shoes on. DON’T have an attorney send demand letters; it is a BIG mistake.
UPDATE 10/4: Sean Hayes has written to share the point that demand letters may not be harmful, and amicable collection efforts not backed by an attachment may be successful, in the case of a major Korean conglomerate. Those companies’ assets aren’t going anywhere, and surprising them with an attachment order may unnecessarily engender ill will and hamper the eventual resolution of the collection effort. That’s probably true, but in my experience foreign creditors may overestimate the size and scope of the company. The moral of the story? Get credit reports at the beginning!
And I’ve also had the experience of arguing with Korean conglomerates’ managers about how even though their predecessor had made the commitment, it was a corporate commitment and not a personal one—thus the company’s liability shouldn’t change based on personnel reassignments. So I’m not sure that they’re all that much better.
Comments
2 Responses to This Entry
Comments Policy: Comments to Korea Law Blog are moderated. This means abusive, or just plain stupid comments will be deleted. So don't be a jerk. It also means there may be some delay from the time you post a comment to the time it shows up here. If your comment wasn't against the policy, it will show up in a little bit.
-
About Korea Law Blog
Korea Law Blog is brought to you by Brendon Carr, an American lawyer working as a foreign legal consultant for more than 10 years in Seoul. (Brendon is not admitted as an attorney in Korea. But you knew that.) -
Contact Details
-
Tel. +82 (0)2 772 2734
Fax +82 (0)2 772 2800
Mobile +82 (0)10 8788 0750 -
Download My FREE Korea Employment Law FAQ
-
Korean Media
-
Blogroll
-
Brendon,
Today a colleague brought me Sean Hayes’ “Lex Pro Bono” column in the Korea Times ”Preliminary Attachments Encourage Settlements”. Having seen KoreaLaw.com, and this very entry on Korea Law Blog three weeks before Sean published, the content is strangely familiar.”
Actually that article was a slightly modifed reprint of an article I wrote 4 years ago in the Korea Herald----not a copy like you seem to contend. The article is entitled “Repo in the ROK” with a date of 2003/08/29 and an article entitled “He took the money and ran” which was posted a few months after the article. An apology is in order.
It is always better to think before you type. I wrote over 200 articles concerning law. Many of yours seemly “strangely familar” to mine.
Also, you are wrong about the Demand Letter. I find that a Letter of Demand usually ends the matter if you are dealing with a reputable debtor. The Demand Letter followed by a phone call from an attorney usually ends the matter.
If you like to pad your legal bill ---do it your way.
For example, How can someone like NongShin Noodle hide assets? That was the actual case I was basing the question on. If you have a company that is not paying because of business failure ---you are correct and you will never see the money anyways because the money is already spent or hid.
Sean Hayes
You and I simply disagree on the point of the demand letter. I’ve been in private practice here for more than 10 years, and in the past I used to send demand letters. When at Aurora Law Offices, for five years we tried to build a practice in debt collections, since we recognized that there are so many commercial credits in the US$100,000-US$1,000,000 range that need collection. There’s nearly a limitless supply.
In those 10 years, with dozens of instances sending demand letters, we received only a handful of responses—even from so-called “reputable companies”—and those responses invariably drew us into nearly endless telephonic and in-person “discussions” with the debtor. There is no better way to “pad the bill”, as you say, than to write useless letters, yak on the phone with these clowns, and then attend fruitless meetings. You must have been really lucky with your debtors, to have acquired a different perspective.
My position against demand letters is based on two factors: (1) People sit up and take notice once an attachment is in place, which then short-circuits the time-wasting dissembling by the target; and (2) I only want to take fees if what I’m going to do is useful—and since the demand letter in my experience is not only not useful, but positively harmful to eventual collection of assets, I advise against them.
Sure, writing and sending the demand letter may only cost a few hundred bucks, but that’s throwing good money after bad and delaying—in fact, undermining—the action which will produce payment.
Your name on the comment is a hyperlink to your “Korean Law Blog”, so anyone who wants to find you can do so. Here’s a link to the firm at which you’re a consultant, too: Ahnse Law Offices.