개정신탁법상 사해신탁제도에 관한 소고 = A reflection on fraudulent trust arrangements under the amended Trust Act

다국어 초록 (Multilingual Abstract)

The draft amendment to the Trust Act (the Proposed Amendment) was released on October 27, 2009. The Proposed Amendment is aimed at overhauling the existing Trust Act which is often criticized as being outdated and inadequate for resolving many legal and practical issues currently faced in the areas of trust law. The adoption of the Proposed Amendment, which was triggered by the recent enactment of the Financial Investment Service and Capital Markets Act (which has consolidated multiple legislations (including the Trust Business Act) into one legislation), is considered a much awaited progress in the areas of trust law and a step towards finally achieving alignment with Korea`s current legal, economic and financial landscape which has undergone substantial changes since the first enactment of the existing Trust Act in 1961. Among the criticisms faced by the existing Trust Act include the lack of certainty and clarity on the issues relating to what constitutes a fraudulent trust. Such lack of certainty and clarity was viewed as one of the key factors undermining the stability and feasibility of real estate trust projects, which were actively pursued in tandem with the development of the project financing (or PF) markets in Korea (which often utilized a collateral trust arrangement) in the aftermath of the Asian financial crisis. In addition to such criticism, the existing Trust Act was viewed as failing to keep pace with the practical needs and demands of participants in transactions which resort to a collateral trust arrangement, thereby arousing many debates and controversies among legal scholars and practitioners as to how to address a widening gap between the legal framework offered by the existing Trust Act and the commercial reality. To illustrate, the existing Trust Act was regarded as particularly problematic in that it allowed for the exercise of the right of revocation of a trust in circumstances where the parties involved in such trust (namely, the trustee and the beneficiary) acted in good faith. The fact that the right of revocation of a trust could be exercised against a bona fide trustee or beneficiary for value meant that these parties could be placed in a precarious position in the absence of any fault of their own. The lack of clarity on the extent of the restoration of the original trust asset also resulted in the inability of the existing Trust Act to properly regulate or streamline the conflicting interests among the parties to a commercial trust (including the trustee and the beneficiary (especially financial institutions acting as lenders in a PF project)). Under the existing Trust Act, the status of the beneficiary was considered unclear and this aroused many questions as to whether it would be possible to exercise the right of revocation of a trust against the beneficiary. A growing consensus on the need to address many criticisms faced by, and loopholes inherent in, the existing Trust Act culminated in the drafting of the Proposed Amendment (in particular, Article 8 of the existing Trust Act, which was fraught with many legal and practical issues). Under the Proposed Amendment, some of the problems illustrated above were addressed such that (i) more flexibility is offered to the party exercising the right of revocation of a trust as such party is able to choose the counterparty it wants revoked (i.e., either the trustee or the beneficiary); (ii) certain restrictions are imposed on the exercise of the right of revocation in circumstances where the parties involved in the relevant trust are bona fide trustee or beneficiary for value; (iii) (in the case where the relevant trust is revoked for being fraudulent) certain restrictions were imposed on the extent of recovery of trust assets from the bona fide trustee without value; (iv) certain liability(ies) are imposed on the party who established a trust (the Company)(which is subject to revocation for being fraudulent) to ensure that a bona fide party involved in such trust would be protected from any loss or damage in the absence of any fault of its own; (v) (in the case where the relevant trust is not revoked despite being fraudulent due to the presence of bona fide trustee or beneficiary for value) the relevant creditors would be protected in that they would be able to claim recovery of trustee fees or return of beneficial certificates from the relevant parties (such as a non-bona fide trustee or beneficiary or bona fide trustee or beneficiary without value); and (vi) certain obligations to compensate the creditors are imposed on the trustee or beneficiary who established a fraudulent trust in collaboration with the Company. As highlighted above, the Proposed Amendment would help alleviate many chronic problems encountered by participants to a commercial trust in practice. The Proposed Amendment, once adopted, will be a catalyst for the long-term stabilization and development of the Korean trust markets as the process of establishing a trust or undertaking a real estate trust project would become more straightforward and less prone to legal and practical uncertainties.