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THE LAW OF THE DEMOCRATIC PEOPLE’S REPUBLIC OF KOREA ON BANKRUPTCY OF FOREIGN-INVESTED ENTERPRISES

Adopted by Decree No. 1504 of the Presidium of the Supreme People’s Assembly on April 19, 2000

Chapter 1. Fundamentals

Article 1. Bankruptcy deals with distributing the assets of an insolvent enterprise to its creditors and dissolving the enterprise under the supervision of a court. The Law of the Democratic People’s Republic of Korea on Bankruptcy of Foreign-invested Enterprises shall contribute to correct settlement of debts and claims of foreign-invested enterprises by establishing a strict system and order in the work related to their bankruptcy.
Article 2.
This law shall apply to foreign-invested enterprises that are registered as a corporate body of the DPRK and carry out business activities in the territory of the DPRK.
Article 3. An enterprise may be declared bankrupt when it fails to repay its debts within the set period, or the debts of the business exceed its assets, or the enterprise cannot be maintained any longer due to a grave loss, or the enterprise cannot be dissolved through normal procedures.
Bankruptcy of an enterprise shall be declared by a judgment of a court.
Article 4. An enterprise may not be declared bankrupt when it can receive financial assistance from an organ, enterprise or association of the DPRK or when there is assurance that the overdue debts can be settled within 6 months from the time of application for bankruptcy.
Article 5. Where the parties agree to reconcile with each other after an application is made for bankruptcy, the bankruptcy procedures under way may be suspended.
Article 6. Cases of enterprise bankruptcy shall be handled and settled by the provincial (or municipal) court having jurisdiction over the seat of the enterprise concerned.
Cases of enterprise bankruptcy in the Rason economic and trade zone shall be handled and settled by the Rason City Court.
Article 7. Provisions not covered by this law shall be pursuant to the Civil Proceedings Act.

Chapter 2. Application for and Declaration of Bankruptcy

Article 8. An application for bankruptcy shall be submitted by an enterprise that has become insolvent and its creditor.
An application for bankruptcy may also be made by the liquidation committee that is in charge of handling the dissolution of an enterprise.
An application for bankruptcy shall be submitted in writing to the relevant court.
Article 9. A creditor who is unable to receive the repayment of his claim within the period set in the contract may apply for declaration of bankruptcy of the enterprise concerned with a view to collecting his claim. In this case, he shall obtain an approval from more than one creditor where the enterprise has more than three creditors.
The application for bankruptcy shall state the title (or name) and address of the creditor, the name and address of the legal representative and his agent, the description, amount and period of the claim, the name and address of the enterprise to be declared bankrupt and be accompanied by documents explaining the reason for non-repayment of the claim and certifying that approval has been obtained for the bankruptcy application.
Article 10. An enterprise that has become insolvent may apply for its bankruptcy according to a decision of its board of directors or joint consultative board in order to be exempted from its obligations.
The application for bankruptcy shall state the name and address of the enterprise, a description of the loss of the enterprise and the reasons for its inability to repay its debts, and be accompanied by such document as a list of debts and assets.
Article 11.
The liquidation committee in charge of handling the dissolution of an enterprise may apply for its bankruptcy where it is deemed appropriate to declare the enterprise bankrupt in the course of handling its dissolution.
The application for bankruptcy shall state the name and address of the enterprise, information on its assets and debts and the fact that the enterprise cannot be dissolved through normal procedures.
Article 12. An application for bankruptcy may be cancelled before the enterprise is declared bankrupt.
A person wishing to have his application cancelled shall submit an application for cancellation of bankruptcy to the relevant court.
Article 13. A court shall decide whether to accept or reject an application for bankruptcy within 30 days of receipt of the application. In this case, it may undertake such investigation as it deems necessary.
Article 14. Where a court believes that an application for bankruptcy is reasonable, it shall declare the enterprise bankrupt by making a judgement to that effect and send copies of the written judgement to the applicant and the enterprise concerned.
The written judgement shall state the name of the enterprise declared bankrupt, the name of the legal representative, the reason for bankruptcy, the date of bankruptcy and the like.
Article 15. An enterprise declared bankrupt shall suspend its bookkeeping, normal property transactions and management activities from the day of receipt of a copy of the written judgement.
Article 16. An enterprise notified of the declaration of its bankruptcy shall, within 2 days of the notice, inform the organ that has approved its establishment of the fact that it has been declared bankrupt and make necessary registration.
Article 17. The legal representative or his agent of the bankrupt enterprise shall not leave the seat of the enterprise and his domicile without permission from the court until the bankruptcy procedures have been completed and shall give explanations to questions related to the bankruptcy or cooperate in the bankruptcy procedures.
Article 18.
Where a bankrupt enterprise has concealed, distributed, donated or transferred at a low price its assets during the 6 months preceding the application for bankruptcy or after the submission of the application or where it has waived its claims without legal ground during the 30 days preceding the application for bankruptcy or after the submission of the application or where it has afflicted losses upon its creditors in anticipation of its bankruptcy, such acts shall be null and void.
Article 19. The court shall organize a liquidation committee composed of 2 or 3 members within 5 days of the declaration of bankruptcy.
The liquidation committee may compromise officials from the organ that has approved the establishment of the enterprise, the financial and banking institution and other officials.
The chairman of the liquidation committee shall be appointed by the court.
Article 20. The liquidation committee shall carry out the following activities immediately after its organization.
1. It shall decide the matters necessary to begin bankruptcy procedure, such as the period of up to 60 days for the declaration of claims, the period for the investigation and determination of claims, the date of convening the first meeting of creditors within 20 days of the declaration of bankruptcy, the deadline for the repayment of debts due to the bankrupt enterprise and the deadline for the persons holding assets of the bankrupt enterprise to declare and return them,
2. It shall send a notice of bankruptcy to the creditors, debtors and holders of assets of the bankrupt enterprise,
3. It shall take over the official seal, the books of account, the lists of assets and creditors and other documents of the bankrupt enterprise,
4. It shall have the assets of the enterprise valued in the presence of the legal representative of the enterprise,
5. It shall settle the outstanding accounts in its ledgers and other books, prepare the balance sheet and the list of assets and submit them to the court,
6. Where necessary, it shall seal assets of the enterprise and prepare corresponding record,
7. It shall settle business transactions of the enterprise, and
8. It shall cancel or suspend the performance of contracts that has not been fully performed by the time the enterprise was declared bankrupt.
Article 21. The liquidation committee shall convene the first meeting of creditors on the fixed date.
The first meeting of creditors shall nominate the head of the creditors’ meeting and hear a report by the liquidation committee on the circumstances that caused the bankruptcy and on the current conditions of the assets and debts of the enterprise.
Article 22. Any decision of the creditors’ meeting shall be valid only if it is approved by a majority of the creditors attending the meeting and the claims held by the approving creditors represent more than half of the total amount of the claims against the bankrupt enterprise.
Decisions of the creditors’ meeting shall be equally binding on all creditors.

Chapter 3. Declaration, Investigation and Determination of Claims

Article 23. A creditor to the bankrupt enterprise shall declare his claims in writing to the liquidation committee within the period of claim declaration.
The claim declarations shall state the title (or name) and address of the creditor, description and amount of the claim, period of claim, the ground that gave rise to the claim, and where he holds other claims, the amount of other claims shall be stated accompanied by a related document of proof.
Article 24.
The liquidation committee shall register the claims as they are declared. Claims shall be registered according to a form shown in the document of claim declaration.
Article 25. Any claim that has not been declared during the period of claim declaration shall be null and void.
Where a creditor notified by the liquidation committee of the bankruptcy fails to make a response, the committee shall notify him again.
Article 26. The liquidation committee shall investigate the claims on the basis of the contents of the declaration within the period of claim investigation.
Investigation shall be undertaken by making a request to the relevant organ or by direct checking.
Article 27.
Where a complaint is raised with respect to a claim, the liquidation committee shall notify the relevant creditor of the complaint.
The creditor may institute a civil lawsuit against the complainant before a court handling the bankruptcy case.
The court shall examine the case and notify the liquidation committee of the result.
Article 28. The liquidation committee shall be responsible for the final determination of claims for which there is discrepancy between the declarations and finding of the investigation and claims for which a complaint has been raised but no civil lawsuit has been instituted.
Article 29. After completion of the investigation and determination of the claims, the liquidation committee shall prepare a list of claims as follows:
1. Claims shall be classified on a priority basis and recorded in the order of their amount,
2. Claims other than corporate debts shall be recorded after classifying them as interests, damages, penalties, fines, commission fees, legal expenses and the like,
3. Corporate debts that have not yet become due shall be recorded by calculating the amounts that are payable for the period up to the time of the declaration of bankruptcy, and
4. For each claim, the amount and any matter raised during the period of investigation and determination of the claim shall be recorded.
Article 30.
The liquidation committee shall submit the list of claims to the court for ratification after obtaining an approval for it from the creditors’ meeting.
The list of claims so ratified shall be equally binding on all creditors.
Article 31. Claim declarations and list of claims shall be kept by the court.
The court may allow parties related to the bankrupt enterprise to read relevant documents upon their request.

Chapter 4. Distribution of Assets of a Bankrupt Enterprise

Article 32. Assets of a bankrupt enterprise shall be distributed to its creditors.
Assets of a bankrupt enterprise shall include monetary property, property in kind, intellectual property rights and the like of an enterprise declared bankrupt.
Assets that are acquired in the course of bankruptcy procedures shall also be included in the assets of the bankrupt enterprise.
Article 33. The liquidation committee shall be responsible for the securing of assets of the bankrupt enterprise to be distributed.
The committee shall call for outstanding contributions to be made and collect the repayments of the corporate debts due to the bankrupt enterprise.
In this case, the amount of a corporate debt to be collected and has not become due shall be calculated as the amount that is payable for the period up to the date of the declaration of bankruptcy.
Article 34. Where a debtor to a bankrupt enterprise holds a claim against the same enterprise, the liquidation committee may allow the debt to be offset against the claim. The offset shall be based on the then exchange rate published by the Foreign Trade Bank.
Article 35. The liquidation committee may dispose of products, machinery and equipment, intellectual property rights or other assets for the purpose of distribution.
Article 36. Assets of a bankrupt enterprise shall be distributed in the following order:
1. State commission fee and the expenses incurred in the bankruptcy procedures,
2. Salary, wage and insurance premium,
3. State levies including taxes,
4. Penalties arising due to cancellation of contracts in the course of bankruptcy procedures,
5. Secured corporate debts,
6. Unsecured corporate debts, and
7. Claims other than corporate debts.
Article 37. The liquidation committee shall notify the head of the creditors’ meeting of the payment of the State commission fee and the expenses of the bankruptcy procedures. Any complaint raised as to the notice of the liquidation committee shall be settled as decided by the court.
Article 38. Any unsecured corporate debt that falls into the category of a priority debt shall qualify for distribution before other ordinary unsecured corporate debts.
Article 39. The liquidation committee shall propose an assets distribution schedule on the basis of the list of claims and the order of distribution. The assets distribution schedule shall state the total amount that should be distributed, the amount that will be actually distributed, the titles (or names) and addresses of the creditors qualified for distribution, the amount of distribution for each creditor and the like.
Article 40. The liquidation committee shall add to the amounts of distribution of the secured corporate debts in the assets distribution schedule interests that are payable for the period from the date of declaration of bankruptcy to the date of distribution. Where, in the course of determining the amounts of distribution in the order specified in Article 36 of this law, it is found that the remaining assets are not sufficient for any further distribution, the amounts of distribution for the remaining claims with lower priorities shall be determined at a uniform rate.
Article 41. The liquidation committee shall present the assets distribution schedule before the creditors’ meeting. Where the distribution schedule is approved by the creditors’ meeting, it shall be ratified by the court, and where it is rejected by the meeting, it shall follow a decision of the court. The assets distribution schedule may be prepared again as may be required by a decision of the court.
Article 42. The liquidation committee shall distribute the assets of the bankrupt enterprise on the basis of the assets distribution schedule ratified by the court. The liquidation committee shall prepare an enterprise bankruptcy report and submit it to the court within 10 days of the completion of distribution of the assets.
Article 43.
The court shall examine an enterprise bankruptcy report of the liquidation committee and terminate bankruptcy by a decision to that effect. In this case, it shall notify the liquidation committee of the termination so that the committee informs the parties to the bankruptcy of termination of the case. No appeal shall be made as to the decision of the court to terminate the bankruptcy case.
Article 44.
Any claim that has not been settled due to a shortage in the assets of the bankrupt enterprise shall be null and void. Any asset that is identified after termination of the bankruptcy case shall be dealt with by the court through a bank.

Chapter 5. Reconciliation

Article 45. Reconciliation is a judiciary process of suspending enterprise bankruptcy procedures under way following an application by the enterprise declared bankrupt and its approval by the creditors. An enterprise declared bankrupt may apply for reconciliation after discussing the matter at the board of directors or joint consultative board.
Article 46. An enterprise declared bankrupt wishing to apply for reconciliation shall, within the period of investigation and determination of claims, submit to the liquidation committee a written application for reconciliation stating the reason for the application, method of repayment of the debts, securities and the like. Conditions for reconciliation shall be fair to all creditors.
Article 47. The liquidation committee shall, within 5 days after the application is submitted, notify the court thereof and ensure that it is discussed and decided by the creditors’ meeting. Session of the creditors’ meeting held for the examination of reconciliation shall be attended by creditors, applicant for reconciliation and members of the liquidation committee. Upon request of the creditors, the meeting may also be attended by a person who will repay the debts of the bankrupt enterprise on behalf of the enterprise.
Article 48. During the creditors’ meeting the applicant for reconciliation shall give explanations as to the reason for the application and the conditions of reconciliation and give answers to the questions asked by the creditors. In this case, the conditions of reconciliation may be changed to the extent that they do not encroach upon the interests of the creditors.
Article 49. An application for reconciliation shall be approved only if it is consented to by a majority of the creditors attending the creditors’ meeting and the amount of the claims held by the consenting creditors represent not less than two thirds of the total amount of claims against the bankrupt enterprise.
Article 50. The court shall make a decision approving or rejecting reconciliation that has become approved by the creditors’ meeting.
The decision of the court as to reconciliation shall be equally binding on the creditors and the applicant for reconciliation
Article 51.
Where the court makes a decision approving the decision of the creditors’ meeting on the approval of reconciliation, it shall notify the applicant thereof within 5 days of making the same decision.
The enterprise notified of the decision of the court approving reconciliation shall perform in time its obligations stated in the conditions of reconciliation.
Where the enterprise defaults on its obligations, the creditor may apply for the court to cancel reconciliation.
Article 52. The court shall, within 10 days after the application is made for the cancellation of reconciliation, make a decision approving or rejecting the application for cancellation.
Where a decision is made approving the cancellation of reconciliation, the bankruptcy procedures under suspension shall be resumed.

Chapter 6. Penalties

Article 53. The liquidation committee, subject to the approval of the court, may impose compensation for damage or fine in the following cases:
1. The legal representative (or his agent) of the bankrupt enterprise has failed to attend the creditors’ meeting, or to give explanation or answers to the questions raised by the creditors at the creditors’ meeting, or given a misleading explanation or answer,
2. Bankrupt assets have been concealed, or debt documents have been fabricated, or false debts have been approved,
3. Book of account or vouchers have been fabricated, destroyed or their contents have been made illegible, or the book of account settled by the liquidation committee has been interpolated,
4. The legal representative (or his agent) of the bankrupt enterprise has moved from the seat of the enterprise or his domicile or conducted contact or correspondence with another person without approval of the court, thus causing hindrance to bankruptcy procedures,
5. A debtor of the enterprise or a holder of bankrupt assets has failed to repay debts or return the assets of the bankrupt enterprise within the date set by the court, thus causing hindrance to bankruptcy procedures, or
6. Bankruptcy procedures have been impeded or creditors have suffered a loss in other ways.
Article 54.
The senior officials of the organs, enterprises and associations or individual citizens, who have violated this law, bringing grave consequences to bankruptcy procedures, shall be liable to administrative or criminal punishment to the degree of violation.


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