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Jul 3, 2010

Debt Collection in Korea

With the recent economic crisis, my Korean law firm has received a noted increase in the number of calls concerning collecting debts from Korean debtors. The debts have been mainly from small U.S. & British importers. Most of the matters concerned unpaid invoices and commercial loans.   A few of the calls concerned, simply, scams by Korean exporters.

A few basics steps can help your company not to be duped by Korean businesses and obtain the money you are owed.
  • Request the Korean company’s business registration number and registered business address.  If they claim not to have a business registration number -- run.  Check that the number and address is correct.

  • Make sure the person you are talking to is actually working for the company that you believe you are doing business with. Call the main company number and send an email to the main company email address listed on the company's website.  If you smell a rat, you probably found a rat. If you smell a rat -- don't eat the rat, get someone in Korea to check the situation out for you. I found two situations, this year, where an individual fraudulently represented himself as a member of a company.  One was found prior to contracting, the other individual was not and is no where to be found. 

  • Obtain a credit rating report on all Korean company you intend to do business.  The reports can be obtained through one of the various commercial rating agencies. Smaller companies reports are often not available in the English language. Some of the ratings can be found at http://www.kisrating.com/.  Ratings for larger companies are very good. Some of the data for smaller companies is not complete, but can still be very useful. 

  • Have all your Korean license agreements and other agreements reviewed by a legal professional with knowledge of the Korean business and legal landscape. A contract drafted by a U.S. law firm is rarely adequate for use in Korea.

  • If a dispute arises, have a firm immediately send a warning and then a demand letter. In most situations, if you have a good lawyer and a debtor with assets, the matter will be solved through the letters. The fee for this service, in most cases, is minimal and can often be obtained for a small upfront fee and percentage of the amount collected.

  • Make sure the demand letter is drafted in English and translated into Korean. I have seen too many times the lack of care and understanding of the facts of the matter leading to negative outcomes in court. Often Korean lawyers seem to understand what you are saying, but often don’t actually understand - so make sure they got the story down by having them first draft the letters in English.  Make sure this is agreed to before you sign the retainer, since this is added work for the attorney.  I strongly advise having a native or at least near native English speaking attorney work on the case with you.  Some firms can still perform well without these attorneys, but this is the exception and far from the rule.  Also, often a foreign educated lawyer is advisable.  I have written articles on this blog and in local media sources concerning the reasons for this and the ineptness of far too many Korean attorneys.  If you are interested, a quick search will locate numerous articles on this issue.

  • If the demand letters fails, you should, normally, obtain an attachment order before trial. Real property and movable property can both be attached. The Korean courts require large refundable deposits for the attachment of movable properties often greater than 1/3 of the value of the movable. A part of the sum may be through bond.  I personally enjoy attaching automobiles.  A company president that is used to a driver and car is often lost when the car is being towed to a government lot.  In one of my favorite cases the president begged us to take the money today and get the car back, since his wife was not too amused by the fact that she was not able to go on her weekend shopping trip to Yeoju Outlet with the husband's car and driver.   

Only hire an attorney that has significant experience with international clients and business litigation.  Make sure the attorney you hire will actually work on the matter and not simply hand it off to a junior attorney.  Also, please realise that the attorney is always more important than the firm.

Recently, two new clients first hired international collections agencies that claimed to specialize in Korean debt collection. The agency failed through demand letters and phone calls and noted that it is best to hire an attorney. Beware debt collectors that advertise that they are internationally experienced in debt collection.  It is possible that some of these agencies can obtain results, but in Korea, and I believe throughout Asia, lawyers can exert strong pressure on a debtors to pay, a debt collection agency, does not seem to have this same pressure unless they have good local attorneys retained.  

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SeanHayes@ipglegal.com