In South Korea, secured transaction law is regulated by the Act on Security over Movable Property 2016. This allows for movable property to be the subject of security interests. Most notably, it changed the previous law by allowing companies to use their inventory, stock, intellectual property and accounts receivables as the subject of security interests, even if they are future assets that do not yet exist. Before this law, only possessory pledges in movables could be created. The law regarding security interests in accounts receivables, which was governed by the Korean Civil Code, was inefficient. In order to perfect security interests, the law required each account debtor to be given notice of the security interest by providing a document with a time stamp. Alternatively, the old law required approval from each account debtor in order to perfect the interest. This was very expensive and onerous for parties trying to create security interests over accounts receivables involving many account debtors. Registration was also inefficient, as there was no notice-based, centralised register, which compromised the creditor’s protection and priority.
The new law tackled these inefficiencies by establishing a registry for all security interests in movable assets, including accounts receivables. In order to perfect a security interest and ensure priority, creditors must register the interest, and in the case of accounts receivables, the creditor or the debtor must deliver proof of registration and filing of the security interest to the account debtors, in the form of a certified document. Interestingly, these new registration rules have not repealed the provisions in the Korean Civil Code, meaning that the rules in the 2019 Act are not the only exhaustive ways of perfecting interests. Rather, in the case of accounts receivables, parties may still perfect their interest through the old system of giving account debtors notice with a time stamp or seeking their approval. Enforcement in cases of default can be carried out by private sale or by public auction.
Last Checked August 2020
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