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Supreme Court Recognizes Exception to Forfeiture of Unreported Claims in Rehabilitation Proceedings

2026.07.20

Introduction
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Under the Debtor Rehabilitation and Bankruptcy Act (“DRBA”), a rehabilitation creditor’s claim is generally extinguished if the creditor fails to report the claim within the prescribed reporting period and the court subsequently authorizes the rehabilitation plan.  This forfeiture rule serves the important objective of bringing certainty to the debtor’s legal relationships and facilitating the efficient implementation of the confirmed rehabilitation plan. 
 
A recent decision of the Supreme Court, however, has recognized a significant exception to this principle.  In Supreme Court Decision No. 2025Da217253 (decided February 12, 2026), the Court held that an unreported rehabilitation claim is not forfeited where the creditor was unaware of the rehabilitation proceedings and therefore unable to report the claim, while the custodian knew, or could readily have known, of the existence of the claim but nevertheless failed to include it in the list of rehabilitation claims. 
 
This article examines the forfeiture of rehabilitation claims under the DRBA, the exception established by the Supreme Court, and the practical implications of the decision for creditors. </div>
 
 
1. Forfeiture of Rehabilitation Claims under the DRBA

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The reporting period for rehabilitation claims is established at the commencement of rehabilitation proceedings, rather than the stage when the rehabilitation plan is confirmed. 
 
That is, once a court commences rehabilitation proceedings, the custodian is required to prepare and submit a list of secured and unsecured creditors, shareholders, and equity holders within a period prescribed by the court—usually ranging from two weeks to two months.  Immediately after the expiration of this submission period, the court opens a statutory period during which creditors may report their claims.  This period generally ranges from one week to one month. 
 
Article 251 of the DRBA provides that, upon the court’s authorization of the rehabilitation plan, the debtor is discharged from all liabilities relating to rehabilitation claims and rehabilitation security rights, except to the extent such rights are recognized under the rehabilitation plan or otherwise preserved under the DRBA.  In addition, security interests over the debtor’s property are extinguished. 
 
The purpose of Article 251 is to promptly settle the debtor’s legal relationships following confirmation of the rehabilitation plan, thereby enabling the orderly implementation of the rehabilitation process.  Accordingly, where a creditor neither reports its claim within the prescribed reporting period nor has its claim included by the custodian in the statutory list of claims, the claim is, in principle, forfeited upon the court’s authorization of the rehabilitation plan. </div>
 
 
2. Exception Recognized by the Supreme Court

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The Supreme Court held that, notwithstanding Article 251 of the DRBA, an unreported claim will not be forfeited where the creditor was effectively deprived of a meaningful opportunity to participate in the rehabilitation proceedings.  Specifically, the Court held that a rehabilitation claim survives a court’s authorization of the rehabilitation plan where: 
 
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			<td width="97%">① The creditor failed to report its claim by the conclusion of the interested parties’ meeting because it was unaware of the rehabilitation proceedings, for example, because it did not receive individual notice of the commencement of the proceedings or the claim reporting period; and</td>
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			<td>② The custodian knew, or could readily have known, of the existence of the rehabilitation claim, or that the creditor was asserting such claim, but nevertheless failed to include it in the list of secured and unsecured creditors, shareholders, and equity holders.</td>
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The Supreme Court reasoned that the forfeiture effect under Article 251 should not apply where the creditor’s procedural right to participate in the rehabilitation proceedings was not substantively protected.  In particular, where the custodian was aware, or could easily have become aware, of the existence of the claim but nevertheless omitted it from the statutory list, it would be inequitable to impose the resulting disadvantage solely upon the creditor. 
 
Importantly, however, the Court also clarified that preservation of the claim does not exempt it entirely from the effects of the confirmed rehabilitation plan.  Rather, although the claim is not extinguished, it remains subject to the substantive modifications imposed by the rehabilitation plan.  The Court characterized such a claim as an “unconfirmed rehabilitation claim,” the scope of which, including the creditor’s repayment rights, must be determined through interpretation of the confirmed rehabilitation plan. </div>
 
 
3. Significance of the Supreme Court’s Decision

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The decision represents an important clarification of the scope of Article 251 of the DRBA.  While reaffirming the importance of the statutory forfeiture rule, the Supreme Court recognized that its application must be limited where a creditor’s procedural rights have not been meaningfully protected. 
 
In effect, the Court balanced the collective interests underlying rehabilitation proceedings against the fundamental requirement that creditors be afforded a genuine opportunity to participate in those proceedings.  Where exceptional circumstances prevent a creditor from exercising its procedural rights, the creditor’s substantive rights cannot be extinguished solely in the interest of achieving finality and equal treatment among rehabilitation creditors. 
 
From a practical perspective, the Court’s decision provides creditors with an important basis for challenging the forfeiture of unreported rehabilitation claims.  Even after the rehabilitation plan has been confirmed, a creditor whose claim was omitted may be able to preserve its rights if it can demonstrate that it lacked actual knowledge of the rehabilitation proceedings and that the custodian knew, or should readily have known, of the existence of the claim.  Creditors confronted with such circumstances may now wish to consult with legal counsel to assess whether grounds exist for them to contest the application of the forfeiture rule. </div>
  
<a href="https://www.jipyong.com/kr/board/news_view.php?seq=15320" target="_blank">[Link to Korean Newsletter]</a>

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