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Special act on the management of public funds

SPECIAL ACT ON THE MANAGEMENT OF PUBLIC FUNDS

SPECIAL ACT ON THE MANAGEMENT OF

PUBLIC FUNDS

Act No. 6281, Dec. 20, 2000

Amended by Act No. 6807, Dec. 26, 2002

Act No. 7111, Jan. 29, 2004

Act No. 7428, Mar. 31, 2005

Act No. 7760, Dec. 29, 2005

Act No. 8863, Feb. 29, 2008

CHAPTER Ⅰ GENERAL PROVISIONS

Article 1 (Purpose)

The purpose of this Act is to provide for matters necessary to ensure efficient
use of public funds as well as to minimize burden on citizens, by enhancing objectivity, fairness and transparency in raising, administering and
managing those funds.

Article 2 (Definitions)

As used in this Act: <Amended by Act No. 6807, Dec. 26, 2002>
1. The term 󰡒public funds󰡓 means funds provided for the restructuring of financial institutions from the following:
(a) Fund for Redemption of Deposit Insurance Fund Bonds established
under the Depositor Protection Act;
(b) Non-performing Loan Resolution Fund established under the Act on the Efficient Disposal of Non-Performing Assets, etc. of Financial
Institutions and the Establishment of Korea Asset Management
Corporation;
(c) Fund for Management of Public Funds established under the Act on the Fund for Management of Public Funds;
(d) State-owned property referred to in the Act on the Contribution
In-kind of State Properties;
(e) Capital which the Bank of Korea established under the Bank of
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SPECIAL ACT ON THE MANAGEMENT OF PUBLIC FUNDS

Korea Act invests in financial institutions; or
(f) Public loans referred to in the Introduction and Management of
Public Loans Act.
2. The term “financial institution” means any of the following:
(a) Any financial institution referred to in the Act on the Structural
Improvement of the Financial Industry;
(b) Any insured financial institution referred to in the Depositor Protection Act (hereinafter referred to as “insured financial institution”); and
(c) Any financial institution referred to in the Act on the Efficient Disposal of Non-Performing Assets, etc. of Financial Institutions and the Establishment of Korea Asset Management Corporation.

CHAPTER Ⅱ DELETED

Articles 3 through 12 Deleted. <by Act No. 8863, Feb. 29, 2008>

CHAPTER Ⅲ MANAGEMENT, ETC. OF PUBLIC FUNDS

Article 13 (Least Cost Principle)

(1) The Government, the Korea Deposit Insurance Corporation and the
Korea Asset Management Corporation shall provide assistance from public funds in such a manner as to minimize the investment cost thereof and
maximize the efficiency thereof.
(2) The Financial Services Commission shall, if it requests the Government or the Korea Deposit Insurance Corporation (hereinafter referred to as
the “Government, etc.”) to make investments in insolvent financial institutions or to purchase securities under Article 12 of the Act on the
Structural Improvement of the Financial Industry, submit to the Government, etc. materials verifying the compliance with the least cost principle under paragraph (1) of this Article and actual investigation
materials on assets and liabilities of those financial institutions in accordance with Presidential Decree. <Amended by Act No. 8863, Feb. 29, 2008>
(3) The Government, the Korea Deposit Insurance Corporation and the
Korea Asset Management Corporation shall prepare and keep materials
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SPECIAL ACT ON THE MANAGEMENT OF PUBLIC FUNDS

verifying that assistance from public funds is provided in compliance with
the least cost principle under paragraph (1).
(4) The standards and procedures for the least cost principle under paragraphs (1) through (3) and other details thereof shall be provided
for by Presidential Decree.

Article 14 (Impartial Loss Sharing Principle, etc.)

(1) In providing assistance from public funds, the Government, etc. shall
do so on condition that persons liable for insolvency of financial institutions eligible for such assistance should share any loss on an impartial basis.
(2) In providing assistance from public funds, the Government, etc. shall
do so in two or more installments: Provided, That this shall not apply to vicarious payment of deposits and other cases provided for by Presidential Decree.
(3) The Government, etc. shall provide assistance from public funds on condition that financial institutions eligible for such assistance should strive for their own restructuring.
(4) If there are persons responsible for the management and supervision of insolvent financial institutions, the Government, etc. shall, without delay, have such persons take such responsibility, such as demanding
damages, in accordance with relevant Acts and subordinate statutes.
(5) In the case of paragraphs (1) through (4), the standards, procedures and other details shall be provided for by Presidential Decree.

Article 15 (Report to National Assembly)

(1) The Financial Services Commission shall, at least once each quarter,
prepare a report on the administration of public funds, such as their use and reuse after recovery and submit it to the National Assembly: Provided,
That a report on the status of the management of assets acquired by such use or reuse shall be submitted not later than the end of March of each year. <Amended by Act No. 7760, Dec. 29, 2005; Act No. 8863, Feb. 29, 2008>
(2) The chairperson of the Financial Services Commission shall, if the National Assembly requests him/her to present himself/herself in connection with a report submitted under paragraph (1), present
himself/herself and give his/her reply. <Amended by Act No. 8863, Feb. 29, 2008>

Article 16 (Auditing, etc. by Board of Audit and Inspection)

The Board of Audit and Inspection shall conduct audits relating to public
funds in accordance with the Board of Audit and Inspection Act and submit
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a report on such audits to the National Assembly.

Article 17 (Conclusion of Arrangement for Implementation of Management

Normalization)

(1) The Government, etc. shall, in cases of intending to provide assistance
from public funds, conclude an arrangement for the implementation of a plan for management normalization (hereafter referred to as
“arrangement”) with the relevant financial institution in accordance with
Presidential Decree.
(2) An arrangement under paragraph (1) shall include the following matters for normalization of the management of the financial institution in question:
1. Objective level of the said financial institution with respect to the
standards for financial soundness provided for by Presidential Decree, including the capital adequacy ratio;
2. Objective level of the said financial institution with respect to the
standards for earning provided for by Presidential Decree, including return on assets;
3. Objective level of the said financial institution with respect to the
standards for asset soundness provided for by Presidential Decree, including bad loan ratio;
4. Detailed implementation plan including a plan for the restructuring
of the said financial institution such as the coordination of personnel, organizations and wages and a financing plan necessary to reach objective levels referred to in subparagraphs 1 through 3;
5. Consent to matters which are included in an implementation plan referred to in subparagraph 4 and which require the consent of a labor union of the said financial institution;
6. Additional implementation plan including a freeze on the total personnel expenses which shall be carried out by the said financial institution, if it does not reach objective levels referred to in subparagraphs 1
through 3; and
7. Other matters provided for by Presidential Decree.
(3) The Government, etc. shall disclose an arrangement under paragraph
(1) through electronic documents, etc.: Provided, That matters which can seriously affect the management of the relevant financial institution and which are provided by Presidential Decree may be excluded.
(4) The Government, etc. shall quarterly review the implementation status
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SPECIAL ACT ON THE MANAGEMENT OF PUBLIC FUNDS

under an arrangement under paragraph (1) and report to the Financial
Services Commission. <Amended by Act No. 8863, Feb. 29, 2008>
(5) In order to review the implementation status under paragraph (4), the Government, etc. may request financial institutions assisted from
public funds to report on their business or property, to submit materials and to have relevant persons present themselves and give their opinions.

<Amended by Act No. 8863, Feb. 29, 2008>

(6) If an executive or employee of a financial institution assisted from
public funds falls under any of the following subparagraphs, the Government may request the head of such institution to take corrective measures or to remove the executive from his/her office, suspend his/her
duties or issue a warning or caution to him/her, or to take disciplinary action against or issue a caution to the employee: <Amended by Act No. 7760, Dec. 29, 2005>
1. If the said executive or employee violates this Act or regulations, orders or directions under this Act;
2. If the said executive or employee does not comply with an arrangement
under paragraph (1);
3. If the said executive or employee falsely prepares a report or materials requested by the Korea Deposit Insurance Corporation under this Act
or an arrangement or neglects the submission thereof;
4. If the said executive or employee refuses, interferes with or evade activities carried out by the Korea Deposit Insurance Corporation under
this Act or an arrangement; or
5. If the said executive or employee neglects the implementation of corrective orders issued or disciplinary action taken by the Korea Deposit
Insurance Corporation.

Article 18 (Conclusion of Arrangement with Insolvent Enterprises)

(1) A financial institution assisted from public funds under Article 17
(1) shall, if it provides an insolvent enterprise referred to in Presidential
Decree with new funds, conclude with such enterprise an arrangement including a written consent of a person related to the restructuring of such enterprise and other matters provided for by Presidential Decree.
(2) The details of the conclusion of an arrangement, etc. under paragraph
(1) shall be provided for by Presidential Decree.
(3) Any financial institution which concludes an arrangement under
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SPECIAL ACT ON THE MANAGEMENT OF PUBLIC FUNDS

paragraph (1) may not, if it deems that such arrangement is not
implemented or such implementation is difficult, provide the relevant insolvent enterprise with new funds.

Article 19 (Sale, etc. of Assets)

(1) The Government, the Korea Deposit Insurance Corporation and the
Korea Asset Management Corporation shall endeavor to minimize the burden on nationals by selling shares and other assets of a financial
institution held by them at appropriate prices.
(2) through (5) Deleted. <by Act No. 8863, Feb. 29, 2008>

Article 20 (Bankruptcy Procedures in Certain Cases)

(1) If an insured financial institution assisted from public funds including
the payment of insurance under the Depositor Protection Act (including an insured financial institution determined prior to a contract under the Act on the Structural Improvement of the Financial Industry) is dissolved
or bankrupt, a court of competent jurisdiction shall, when the efficient recovery of such public funds is necessary, appoint the Korea Deposit Insurance Corporation or its executive or employee as a liquidator or a
trustee in bankruptcy, notwithstanding the provisions of Article 531 of the Commercial Act, Article 355 of the Debtor Rehabilitation and Bankruptcy Act, and Acts related to the appointment of liquidators or
trustees in bankruptcy. <Amended by Act No. 7428, Mar. 31, 2005>
(2) If the Korea Deposit Insurance Corporation is appointed as a liquidator or a trustee in bankruptcy under paragraph (1) of this Article, Article
539 (2) of the Commercial Act and Articles 364, 492 and 493 of the Debtor
Rehabilitation and Bankruptcy Act shall not apply. <Amended by Act No.

7428, Mar. 31, 2005>

Article 21 (Publication of White Book)

The Financial Services Commission shall, not later than the end of August
of each year, publish a white book on the management of public funds including the status of the administration thereof in accordance with
Presidential Decree. <Amended by Act No. 8863, Feb. 29, 2008>

Article 21-2 (Record Preservation Period)

The following records which are related to the Committee for Management
of Public Funds established under Article No. 6281 (hereafter referred to as the “Committee” in this Article) shall be permanently preserved:
1. Records related to the deliberation and coordination by the Committee;
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SPECIAL ACT ON THE MANAGEMENT OF PUBLIC FUNDS

2. Records deliberated on by the Committee after receiving a report from
a public funds-related institution including the Government, the
Financial Services Committee (referring to the Financial Supervisory
Committee established under the previous Act on the Establishment, etc. of Financial Supervisory Organizations: hereafter the same shall apply in this Article), the Korea Deposit Insurance Corporation and the Korea
Asset Management Corporation; and
3. Records related to materials submitted to the Committee after implementing following measures:
(a) Request for submitting reports, materials or documents against the Financial Services Committee, the Korea Deposit Insurance Corporation and the Korea Asset Management Corporation;
(b) Request for presenting or submitting of opinions against interested parties, references or relevant officials; or
(c) On-spot surveys on related institutions.

[This Article Wholly Amended by Act No. 8863, Feb. 29, 2008]

CHAPTER Ⅳ DELETED

Articles 22 through 24 Deleted. <by Act No. 8863, Feb. 29, 2008>

ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation.

Article 2 (Period during Which Bankruptcy Procedures in Certain Cases

Apply)

The bankruptcy procedures in certain cases under Article 20 shall remain
in force for a period of five years after this Act enters into force: Provided, That liquidators or trustees in bankruptcy appointed by a court of competent
jurisdiction under Article 20 shall remain effective until procedures for liquidation or bankruptcy of the relevant foundation expire.

Article 3 (Transitional Provisions on Bankruptcy Procedures, etc. in

Certain Cases)

If the efficient recovery of public funds is necessary, a court of competent
jurisdiction shall, within three months after the enforcement date of this
Act, appoint additionally the Korea Deposit Insurance Corporation or its
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executive or employee as a liquidator or a trustee in bankruptcy of an
insured financial institution whose liquidation or bankruptcy procedures are in progress at the time when this Act enters into force.

ADDENDA <Act No. 6807, Dec. 26, 2002>

Article 1 (Enforcement Date)

This Act shall enter into force on January 1, 2003. (Proviso Omitted)

Articles 2 through 11 Omitted.

ADDENDA <Act No. 7111, Jan. 29, 2004>

(1) (Enforcement Date) This Act shall enter into force on the date of its promulgation.
(2) (Examples of Application of Record Preservation Period) Notwithstanding the provisions of other Acts, the amended provisions of Article 21-2 of this Act shall apply to any period during which the following documents including
those prepared and managed by the restructuring planning office established under the Financial Supervisory Commission in order to develop a policy on the financial and corporate restructuring and to systematically and
efficiently perform restructuring affairs in course of raising, investment and use of public funds prior to January 1, 2001 and by the corporate restructuring committee established under the arrangement among financial institutions
for corporate restructuring promotion, are preserved:
1. Documents prepared and managed by the restructuring planning office for a period from its establishment to its dissolution;
2. Documents prepared and managed by the corporate restructuring committee for a period from its establishment to its dissolution; and
3. Documents prepared and managed by the corporate restructuring
committee, which any financial supervisory organization established under the Act on the Establishment, etc. of Financial Supervisory Organizations receives from that committee.

ADDENDA <Act No. 7428, Mar. 31, 2005>

Article 1 (Enforcement Date)

This Act shall enter into force one year after the date of its promulgation.

Articles 2 through 6 Omitted.

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ADDENDUM <Act No. 7760, Dec. 29, 2005>

This Act shall enter into force three months after the date of its promulgation.

ADDENDA <Act No. 8863, Feb. 29, 2008>

Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation.

Articles 2 through 5 Omitted.

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