Court, partnership liquidation dispute... “There is no obligation to return capital if the investment is overused due to operating deficit”

Plaintiff requests return of 240 million won in investment and settlement amount
Court: “Under the Commercial Act, there is no obligation to return the anonymous association when all investments are reduced due to business expenses.”

In the case where the partnership contract is liquidated due to operating deficit, use of all capital due to operating deficit, failure to settle profits, etc., a ruling has been made that there is no need to return the investment and settlement amount.

It was confirmed that Judge Ryu Ji-mi of Suwon District Court's Ansan Branch, Civil Division 8, ruled in December last year to dismiss the plaintiff's claim in a lawsuit seeking return of investment funds filed by Mr. A, a party to the franchise partnership agreement, against Mr. B, a partner.

Mr. A and others signed a franchise partnership agreement with Mr. B around March 2022 and jointly acquired a shopping mall located in Seongnam-si, Gyeonggi-do.

In the partnership agreement, Mr. A and others agreed not to be involved in management and would only support various funds such as shopping mall purchase costs, interior construction costs, and franchise fees, while Mr. B agreed to take responsibility for the overall management of the business.

Regarding the distribution of profits, Mr. B agreed to distribute the sales profits in a certain ratio and then pay them to Mr. A and others. However, unlike in the early days of the business, as interest rates rose, Mr. B was unable to pay the profits he had previously provided.

When the damage occurred, Mr. A and others filed a lawsuit requesting the return of the investment, claiming that Mr. B, a business associate, should return approximately 240 million won, including the entire investment they had supported, unpaid profits, interest, etc.

In this trial, defendant B defended, saying, “As the interest rate on loans has increased, we have become unable to cover the interest with commercial operation profits alone. As the deficit continued, we tried to make up for the loss by taking out business loans and investing personal expenses.”

Judge Ryu Ji-mi of the Ansan Branch of Suwon District Court, who heard this case, ruled, “Acknowledging the special situation of operating deficit, Mr. B has no obligation to return the investment.”

Judge Ryu Ji-mi said, “The defendant deposited a considerable amount of money in excess of the plaintiffs’ respective investment amounts into the commercial operation account in this case and used it for expenses, but it appears that he was unable to avoid an operating deficit,” and ruled, “Therefore, it cannot be said that there is an investment amount to be returned to the plaintiffs by the defendant.”

Attorney Lee Jae-hyung of Daeryun Law Firm (Limited), who represented the defendant B in this lawsuit, said, “Even if the commercial partnership has been dissolved, only the reduced balance of the investment is required to be returned in accordance with Article 85 of the Commercial Act. Mr. B was in a special situation where commercial loan interest rates were increasing, and although he tried various measures, it was difficult to avoid a deficit. Since he had already used an amount exceeding the investment, there was no contribution or settlement amount for Mr. B to return. “You have to see it,” he explained.

Reporter Son Dong-wook (twson@lawleader.co.kr)

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Court, partnership liquidation dispute... “There is no obligation to return capital if the investment is overused due to operating deficit” (Shortcut)