LIN NEWS
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LIN News[Research] Economic Analysis of Collateralized Trusts: Focusing on the Issues of Insolvency InsulationHyo Jong Choi, head of the Insolvency Team at Lin, together with Jinsoo Yoon, Professor Emeritus and Doctor of Laws at Seoul National University School of Law, published a research paper titled "Economic Analysis of Collateralized Trusts: Focusing on the Issues of Insolvency Insulation" in the Journal of Law and Economics published by the Korean Society of Law and Economics. In the paper, Hyo Jong Choi argued that the Supreme Court's precedent recognizing the insolvency insulation of collateralized trusts is inconsistent with the general insolvency doctrine, that it is difficult to find cases in other countries that grant insolvency insulation to collateralized trusts, and that the market impact of a change in the precedent is unlikely to be as large as expected, so it is worth considering a change in the Supreme Court's precedent. The article is likely to be of great reference to PF companies in the real estate sector that have been facing difficulties in the recent past and are facing insolvency proceedings. The full text of Mr. Choi's article can be found in Volume 20, Issue 1 of the Journal of Law and Economics published by the Korean Society of Law and Economics.2023.05.30
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News Letter「Significance of Capital Contribution with Patent Licensing Rights in China」Enterprises with patented technology often collaborate with Chinese companies with a solid network and deep financial strength in the local area in the form of Joint Ventures to enter the Chinese market more easily when entering China. In this case, Korean companies (especially start-ups) tend to prefer in-kind contributions of patented technologies rather than cash contributions. The first issue to be determined when making in-kind contributions by patented technology is whether to invest as a patent or a patent licensing right. In our experience, some companies invest a lot of money in the joint venture process only to realize the difference in hindsight, and either abandon the joint venture project or reconsider it from scratch. Below, we briefly explain the case of contributing by a patent licensing right in China. 1. Legal basis for capital contribution of patent licensing rights According to the provisions of Article 27, paragraph 1, of the Company Law of China, shareholders may make capital contributions with non-monetary assets such as physical assets, intellectual property rights, land use rights, etc. that can be valued in cash and transferred in accordance with the law, except for assets that cannot be used as capital contributions under the relevant law of China. Article 13, Paragraph 2 of the Administrative Regulation of the People's Republic of China on the Registration of Market Entities lists assets that cannot be used for capital contribution, including labor services, credit, name of a natural person, goodwill, franchise rights, or assets secured by collateral. (i) Patent licensing right can be evaluated for its value, (ii) is legally transferable, and (iii) does not belong to assets that cannot be used for capital contribution. Therefore, according to the above regulations, it can be concluded that capital contribution by patent licensing right is legally possible in China, which is also widely recognized in China. In addition, most Chinese courts have judged that capital contributions with patent licensing rights are in accordance with the law and are therefore recognized. 2. Court precedents The two cases below are the cases in which the Intermediate People’s Courts of Shanghai and Nanjing in Jiangsu Province recognized the capital contributions with patent licensing rights among major cities in China. • The 2018 ruling from the Shanghai Second Intermediate People's Court: The agreement stipulated that the contribution was undertaken through the technology usage rights as per the contract. The valuation was conducted on the usage rights rather than ownership. Given that the invested company effectively utilized the technology in its business operations, it was acknowledged that the obligation for contribution with the patent licensing right or technology license had been fulfilled. • The 2013 ruling from the Nanjing Intermediate People's Court in Jiangsu Province: Despite the absence of a distinct agreement on whether the investment stemmed from patent rights or patent licensing rights, it was observed that the invested company had employed patent technology in its business operations without undergoing the patent transfer process. Additionally, since there is no legal prohibition against contributions via patent licensing rights, the contribution based on patent licensing rights should be acknowledged. The above court rulings are all civil lawsuits filed by investors in which there was a dispute as to contribution with patent rights versus patent licensing rights, and the courts recognized contribution with patent licensing rights. While contribution with patent licensing rights is recognized by Chinese courts as above, it is also important to note the practice attitude of the local registration department. 3. Attitudes of Different Local Authorities In China, whether it is a cash contribution or an in-kind contribution, the contribution method and its amount must be registered with the local authorities. In our experience, local authorities take a different stance toward the registration of contributions by patent licensing rights, which often leads to difficulties in practice. For example, the registration departments in Beijing and other regions were of the opinion that it is not possible to register the contributions with patent licensing rights, and registration departments in Shanghai and other regions gave an ambiguous opinion that it should be judged depending on specific circumstances. The registration department in Hunan Province stated that they did not recommend it because they had no experience in actually registering capital contributions with patent licensing rights. In other words, the biggest challenge to overcome when contributing with patent licensing rights in China is the formidable ‘barrier’ by the registration department. Furthermore, even within the same registration department, there are no uniform internal regulations or work guidelines, so it is not uncommon to see different opinions from different officials. However, filing an administrative lawsuit against the department in charge of registration (i.e., the government) is not an easy option in China, so it is inevitably difficult for those working in practice. While currently uncommon, however, there are a few recorded cases where the completion of contribution involving patent licensing rights has taken place through the registration process. As the industry's awareness of this trend continues to grow, the possibility of wider acceptance gains traction. The anticipation is that with the formulation of clearer practical guidelines, this approach might eventually transform into a universally recognized method of contribution in China in the future. 4. Implications As noted above, despite the absence of legal prohibition, contribution via patent licensing rights in China faces practical challenges. There exist varying attitudes from local authorities and courts, contributing to its limited usage. Should investors find themselves compelled to invest through patent licensing rights, it is advisable to engage legal professionals from the outset of investment. Thoroughly assessing the aforementioned issues and devising a comprehensive business plan can ultimately mitigate risks and achieve cost savings. * * * If you have any inquiries or questions regarding the above, please do not hesitate to contact us via lin-china-team@law-lin.com.2023.08.30
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NoticeA Guide to Selling Offshore Funds in South KoreaA Guide to Selling Offshore Funds in South Korea I. Introduction In recent years, South Korean institutional investors have significantly increased their overseas investments as record-low interest rates and unfavorable market conditions at home have limited profitable investment opportunities in Korea. The National Pension Service, the country’s largest institutional investor, which currently manages more than 800 trillion won in assets, invested roughly 23 trillion won (approximately $20.4 billion) in overseas assets in 2020 alone, and it has announced a plan to further expand its overseas allocations over the next few years. Amid the growth of Korean overseas investments, global asset managers are increasingly finding Korea to be an attractive destination for finding new investors to whom they can market and sell their investment products. This article provides a brief guide to marketing and selling offshore funds in Korea. II. Offshore Fund Registration in Korea Under the Financial Investment Services and Capital Markets Act of Korea (the “FSCMA”), all offshore funds marketed or sold to Korean residents must be registered with the Financial Supervisory Services of Korea (the “FSS”) in advance, and they must be marketed or sold through a locally licensed distributor, such as Korean banks and securities companies that are licensed to distribute fund products. Generally speaking, to register an offshore fund with the FSS, the fund and its asset manager must satisfy certain eligibility requirements, which vary depending on whether the fund is marketed to certain qualified professional investors only, or it is offered to general investors. Since most of the offshore funds sold in Korea are private funds marketed only to certain professional investors, the scope of this article is limited to the legal requirements applicable to the registration of such privately placed funds. The eligibility requirements for offshore private funds placed to qualified professional investors are as follows: The fund should have been established lawfully in accordance with the laws of its home country, and its constitutional documents should not contain any terms contrary to any Korean law or regulation, or the interests of Korean investors; The fees and expenses to be incurred by investors should be clearly stated in the fund documents; The fund manager should not have been subject to any suspension of business or major administrative sanctions, or to criminal fines or criminal penalties, by Korean regulators in the recent three years; The fund manager should have a track record with the management of similar funds (which can be shown by presenting audited financial statements proving the same); and The fund manager, trustee/custodian, distributor, and administrator of the fund should not have been subject to a suspension of business. Procedurally, the following steps are required to register all private funds. The applicant prepares a fund registration application and supporting documents, which include (among others) the offering documents of the fund and documents evidencing the satisfaction of the eligibility requirements discussed above. The applicant must then have a pre-filing consultation with an FSS officer and supplement the application package as requested by the officer. Once the FSS officer finds the application to be in order, the application is officially submitted to the FSS electronically. Because of the large volume of the applications, now it generally takes about four to five months for the registration to be completed. Once a fund is registered and becomes operational, the fund must comply with certain ongoing compliance requirements. These ongoing requirements include filing reports on fund sales to the FSS, keeping investors informed of the asset management performance and the base price of interests (i.e., NAV per share or unit), reporting changes in any registered information regarding the fund, and paying the annual registration tax. III. Asia Region Funds Passport On May 27, 2020, Korea implemented the Asia Region Funds Passport (the “ARFP”), which essentially allows funds registered as ARFP funds in any of the ARFP-member countries (i.e., Korea, Australia, New Zealand, Japan, or Thailand) to be offered and sold in any other ARFP-member country through a simplified registration process. Thus, ARFP funds registered in Australia, New Zealand, Japan, or Thailand may be publicly offered in Korea through a fast-track registration process without an eligibility review. Please be informed, however, that regardless of whether or not a fund is ARFP-registered in its home country, any ARFP fund sold in Korea must still comply with all applicable Korean laws and regulations, including the obligation to sell such funds through a locally licensed distributor, and to satisfy all ongoing compliance requirements. IV. Conclusion While fund registration in Korea may seem like a procedurally straightforward process, it is extremely important that the application package be prepared properly and that consultations with FSS officers conclude smoothly, in order to ensure the timely administration and processing of a fund’s registration application. We have extensive experience in assisting with the registration of offshore funds in Korea, including consultations with regulatory authorities. We have represented TPG, Macquarie and other major international asset managers, and the types of funds we have successfully registered for clients include US limited partnerships, Luxembourg partnerships, Australian stapled trusts, exempted companies organized under the Cayman Islands law, and segregated portfolio companies in the Cayman Islands. Mr. Hyun Sang Youn who worked as a general counsel for global asset managers has deep business acumen and technical experience built over decades of experience, and based on our in-depth understanding of various overseas fund types and fund business, we ensure that the registration process runs smoothly, from document preparation to consultation with the regulatory authorities, and that our clients are able to get their registration completed timely and accurately. If you have any inquiries regarding fund registration in Korea, please contact below: Hyun Sang Youn (hsy@law-lin.com) Ye Jin Han (yjhan@law-lin.com)2021.11.10
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Select MattersLIN Wins an Injunction to Suspend the Validity of an Exclusive Contract on behalf of “LOONA”.LIN represented nine members of the girl group named “LOONA" (HeeJin, Kim Lip, JinSoul, Choerry, HaSeul, YeoJin, Yves, Olivia Hye, and Go Won) against their agency, Blockberry Creative, and obtained a favorable decision, allowing all members of the group to leave the agency. In January, nine members of "LOONA" filed an application for a temporary restraining order against the agency, and four members (HeeJin, Kim Lip, JinSoul, and Choerry) won the case because the revenue sharing clause in the agency contract was unfair, while the other five members (HaSeul, YeoJin, Yves, Olivia Hye, and Go Won) lost the case. The reason was that the five members (HaSeul, YeoJin, Yves, Olivia Hye, and Go Won) had changed some of the terms of the contract unlike the other four members (HeeJin, Kim Lip, JinSoul, and Choerry). The five members then filed an appeal, and on June 16, the Civil Division 5 of the Seoul High Court revoked the first court's decision and decided to grant the appeal in the appeal for a preliminary injunction to suspend the effectiveness of the exclusive contract filed by the five members (HaSeul, YeoJin, Yves, Olivia Hye, and Go Won) against the agency. LIN pointed out that Blockberry Creative had transferred some of its rights under the agency contract to its Japanese management company, Universal Japan, without the members' written consent, and the appellate court accepted the law firm's arguments, suspending the effectiveness of the agency contract pending judgment on the merits and deciding that the agency should not negotiate and conclude contracts with third parties for entertainment activities against the members' will, and should not request or interfere with the members' entertainment activities. This case was the result of a collaboration between the entertainment and sports teams of LIN. While Korea’s trade export deficit has been accumulating for more than a year, K-content exports reached $13 billion as of last year, and the status of K-contents is increasing day by day, so it is expected that there will be more cases in which artists will apply for the suspension of the effectiveness of exclusive contracts against their agencies, and the logic presented by LIN and the court's judgment recognizing it will be an important reference for similar cases in the future.2023.06.21
Hyo Jong Choi, Attorney at LIN, Interviewed on 'Loopholes in the Bankruptcy System'
Despite the bankruptcy risk faced by Willings, an affiliate of JSCO Holdings, due to a loophole in the bankruptcy system, the bankruptcy filing was ultimately withdrawn. Willings is now exploring the possibility of pursuing civil and criminal actions through its legal representatives, as it regards the bankruptcy filing as a malicious act by Rewater Solution.
In response to the case, Hyo Jong Choi, a lawyer with expertise in rehabilitation and bankruptcy procedures at LIN, noted that unlike rehabilitation proceedings, which can only be initiated by creditors with debts comprising 10 percent or more of the capital, bankruptcy can be initiated even with a debt as low as one Korean Won. Historically, it has been used as a retaliatory tactic since stock trading remained suspended until the court's decision was reached.
He added that significant complaints from victims have led to institutional improvements, enabling stock exchanges to exercise their own judgment and lift trading suspensions even before a court decision is reached. However, these changes do not address the psychological impact on other shareholders.
LIN, Attorney Hyo Jong Choi
The original article can be found below.
Ki Beom Park, Energy Economist
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https://www.ekn.kr/web/view.php?key=20230915010004288
LIN and IHCF Host Seminar on "Healthcare Regulatory Trends in the Age of Colossal AI"
On September 1, 2023, LIN and the Healthcare Division of the In-House Counsel Forum (“IHCF”) held a seminar on "Healthcare Regulatory Trends in the Age of Colossal AI." The seminar was held to examine healthcare regulatory and policy trends and provide information to participating companies.
(Attorney Chang-ha Brian Yoo, LIN)
Amidst the irreversible trend of digital transformation in the post-pandemic healthcare industry, our digital healthcare experts, Tae-eon Koo, Kyung-hee Park, and Chang-ha Yoo, presented on the below topics to highlight regulatory issues that need to be resolved for innovative companies to enter the market quickly.
1. My health data and AI-based personalized medical services
2. Legislative and policy trends for the adoption of AI in the healthcare industry
3. Regulating AI in the healthcare industry in the EU and the U.S.
An official from the IHCF said that "the AI medical healthcare industry is rapidly growing in the global market, and many domestic and foreign companies are entering the industry" and that "we hope to provide practical help to the legal teams of companies."
The original article can be found below.
The Korea Law Review, Soo-yeon KIM
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https://www.lawtimes.co.kr/news/191200?serial=191200
Ministry of Justice Appoints Strategic Advisory Group for the Development of Criminal Justice Information System of Korea - Tae-Eon Koo of the Lawfirm LIN
On August 16, Attorney Tae Eon Koo, LIN was appointed as an advisor of the Advisory Group on Strategies for the Development of Criminal Justice Information System of Korea, an advisory body to the Minister of Justice. The Advisory Group is comprised of 13 experts in the fields of artificial intelligence, big data, and criminal justice.
(Photo of the Strategic Advisory Group for the Development of Criminal Justice Information System_Provided by Ministry of Justice, Yonhap News)
At the first meeting held following the inauguration ceremony, the advisory members heard about the progress of the project to build the next-generation criminal justice information system and shared their opinions on development strategies, including how to implement advanced information technologies such as artificial intelligence (AI) and big data into the system.
The Criminal Justice Information System (KICS) is an electronic management system that can be utilized by criminal justice departments/agencies such as the Ministry of Justice, courts, prosecutors, police, and high-level public officials in accessing, sending and receiving information, and has the advantage of enhanced speed and transparency. The next-generation criminal justice information system is being built in time for the implementation date of the Electronic Documentation Act of Criminal Procedures which is scheduled in October next year, and the advisory group will endeavor towards the full digitization of the criminal justice procedure of Koea.
The original article can be found below.
SBS News, Reporter Kang Min-woo
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https://news.sbs.co.kr/news/endPage.do?news_id=N1007310122&plink=ORI&cooper=NAVER
