Court Decision for KDIC to Compensate 603 Billion Won

The court decided that Korea Deposit Insurance Corporation (KDIC) should compensate 603 billion won to Daehan Investment Trust Securities (Daetoo) that supported Daewoo by illegal loan method through Nara Financial Company in 1999, but it has not recovered the financial damage because of the bankruptcy of Nara Financial Company.

At 16th, 23 Civil 23 division of Seoul Local Court (Kim Moon-suk Senior Judge) decided that for the sue of compensation by Seoul Bank and Small and Medium Enterprise Bank against KDIC “ The defendant should compensate 539 billion won of principal and 64 billion won of accumulated interest to the complainant.”

So other three financial sued same kind of compensation have high possibility to win the cases, and more than 1 trillion won of public fund will be wasted.

However, financial industry and law society criticize that it is not coincide the purpose of the Regulation of Depositor Protection to protect malicious financial institutions having resulted in financial damage to the nation by illegal loan method and faithless management. Particularly, they criticized that the court focused on law formality and disregarded the waste of huge amount of public fund fostered by tax.

In the decision, the court decreed "The fact is admitted that the complainants purchased bills issued by Nara Financial Company by the order of Korea Deposit Insurance Corporation, and Nara Financial Company supported Daewoo by purchasing Daewoo`s bill with the fund."

However, the court added "The Regulation of Depositor Protection in 1999 regulated that the bill transaction between financial institutions as the subject of the deposit insurance considering the economic difficulties at that time. So the defendant shoul compensate to the complainants."

The court explained "If the claim is paid to Daetoo, it will resulted that the financial damage from illegal loan to Daewoo and faithless management of Daetoo is supported by public fund fostered by people`s tax. However, the decision is not against the purpose of the regulation because the range of the protection was extended for social, economical needs."

Daehan Investment Trust, ex-Daetoo, supported Daewoo Group 820 billion won by using Nara Financial Company to avoiding the limitation of loan amount in March 1999. As it can`t collect the loan because Nara Financial Company became bankrupt in May 2000, Daehan Investment Trust sued for the compensation against KDIC that guaranteed for the fund.

Sang-Rok Lee myzodan@donga.com