Gangnam apartment complex plans bankruptcy after 17 billion won debt crisis

Members of an apartment complex in Gangnam, Seoul, are pursuing a bankruptcy application in court, claiming they cannot repay the money borrowed from the construction company. They plan to dissolve the cooperative that borrowed the money and apply for bankruptcy in court. The total amount borrowed for this apartment, including principal and interest, is around 17 billion won.

Although the court issued a final ruling through a civil lawsuit ordering the construction company to return the money, the cooperative members plan to reject it and file for bankruptcy. They are required to collect around 10 million won per household to repay the money, but there is no way to compel non-paying members, and the longer they delay, the more delayed interest accumulates.

According to the construction industry on the 5th, the preparation committee for the redevelopment of the Seongwon Daechi 2 complex in Gaepo-dong, Gangnam, Seoul, will hold a general meeting to dissolve the remodeling housing cooperative on the 22nd. This complex established a remodeling housing cooperative in 2008 to perform a vertical expansion, but the new construction method they intended to apply failed technical verification, preventing the project from progressing for 17 years. Therefore, the members plan to dissolve the remodeling housing cooperative through the general meeting.

Members plan to abandon remodeling and push for redevelopment. The cooperative selected DL E&C and HDC Hyundai Development Company as the remodeling contractors in 2016. After that, up until they decided to terminate the contract with the contractor in June 2021, they borrowed 11.2 billion won for project costs. Following the termination of the construction contract, DL E&C and HDC Hyundai Development Company filed a loan return lawsuit at the Seoul Central District Court and won in June 2023.

The court ruled that HDC Hyundai Development Company should compensate 4.57473 billion won and DL E&C should compensate 6.6711068217 billion won. It also ordered that, as of the cutoff date of October 28, 2021, delayed interest at an annual rate of 15% be paid until this amount is fully repaid. The cooperative did not appeal, and the total amount of principal and interest is estimated to be around 17 billion won. Considering that this complex comprises 1,758 units, each household must contribute about 9.67 million won to repay the debt.

This general meeting for dissolution is a procedure to dissolve the remodeling cooperative and file for bankruptcy so they will not have to repay the debt after the dissolution. A member of the redevelopment promotion committee noted, “Even if we convince the members to split the repayment of around 10 million won per person, there is no way to compel those who refuse to pay. Ultimately, only the delay continues, and the interest piles up, making it impossible to repay, so filing for bankruptcy with the court seems to be the most realistic option.”

So far, there has been no precedent for a remodeling cooperative to file for bankruptcy. For this reason, the redevelopment promotion committee has sought legal advice from law firm Jipyeong. The cooperative members leading the bankruptcy application argue, “If only some members pay nearly 10 million won, those who do not pay will arise, and they cannot be compelled. As a result, only the interest accumulates without the ability to repay,” asserting that “filing for bankruptcy is the best method.”

However, there are claims that applying for bankruptcy after borrowing a large sum exceeding 10 billion won for several years is counter to decency and common sense. Byun Seon-bo, a lawyer at law firm Jidmok, stated, “There is a system in place according to the law for debt exemption, which means the remodeling cooperative can naturally file for bankruptcy,” but he added, “Filing for bankruptcy without making an effort to repay after borrowing a large sum for the apartment remodeling project is an act that violates fairness.”

Kim Ye-rim, a lawyer at law firm Simmok, remarked, “There are often cases where cooperatives dissolve to rid themselves of debts by exploiting the lack of regulations in the Urban and Residential Environment Maintenance Act regarding how a new cooperative takes over the debts held by the former cooperative,” noting that “since there is no established precedent in the courts, it is often up to each case whether to accept the bankruptcy application.”