Hello, this is Law Firm Cheongchul's Attorney Park Jong-han.

The legal nature of a joint venture corresponds to a partnership under civil law, and Article 717 of the Civil Act states that a member is considered to have withdrawn from the partnership in the event of bankruptcy. Therefore, if one of the members goes bankrupt, according to civil law provisions, the bankrupt member will withdraw from the joint venture.

However, if the bankrupt member wishes to remain in the joint venture to continue the shared business and such a method is not detrimental to the client, it is necessary to examine whether a withdrawal prohibition agreement can be made to prevent the withdrawal of the bankrupt member.

[Question]

The effectiveness of a withdrawal prohibition agreement when a member of the joint venture goes bankrupt

[Answer]

Article 717 of the Civil Act states that a member is deemed to have withdrawn from the partnership in cases of death, bankruptcy, incapacity, or expulsion; thus, when a bankrupt member occurs among the members, the bankruptcy trustee must withdraw the bankrupt member from the partnership to use their share to satisfy the bankruptcy purpose. If the members agree at the time of the partnership contract to not withdraw even if a member goes bankrupt in the future, contrary to the civil law provisions, this is essentially allowing the agreement to arbitrarily alter the provisions related to the interests of unspecified future bankrupt creditors, and therefore, is generally not permitted.

However, during bankruptcy proceedings, it is not necessarily required to liquidate the bankrupt's existing business immediately; instead, if continuing that business is beneficial for the bankrupt's creditors, it may be possible to continue the business within a certain scope (refer to Bankruptcy Act Articles 50, 182, Paragraph 1, and 184). Among these cases, if the bankrupt's business is being conducted together with a third party, there may be circumstances where the bankrupt member needs to remain in the partnership to continue the joint business.

Therefore, if the bankrupt member remains in the partnership to continue a joint business with a third party, and this is not detrimental to the creditors of the bankrupt member, and the approval of the creditors of the bankrupt member is obtained for the bankruptcy trustee to choose to remain in the partnership, then even if the member goes bankrupt, the agreement prohibiting withdrawal among the members is valid (refer to Supreme Court ruling 2004. 9. 13, case 2003Da26020).

That is, if the bankrupt member of the joint venture remains in the joint venture and this is not detrimental to the client and has obtained the client's consent, exceptionally, even if a member of the joint venture goes bankrupt, the withdrawal prohibition agreement is valid.

On the other hand, if a member of the joint venture goes bankrupt and withdraws, the remaining members will jointly fulfill the contract according to the standard joint venture agreement.

Thus, we have briefly examined the effectiveness of the withdrawal prohibition agreement when a member of the joint venture goes bankrupt. In cases related to national contracts and public procurement disputes, the relevant laws are very complex and subject to frequent amendments, so it's necessary to be familiar with them and have experience. Furthermore, one should have knowledge not only of court rulings but also of the administrative authority's interpretations and case examples. Therefore, it is recommended that you seek the assistance of Attorney Park Jong-han, who has expertise in national contract laws and experience in various disputes related to national contracts and procurement.

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