For a foreign parent company, discovering that the representative director of its Korean subsidiary, or the Korean representative of its branch, has been diverting money is one of the hardest situations to manage from abroad. The person under suspicion often controls the company seal, the bank accounts, and the accounting records. Taking action in the wrong order can let assets disappear and evidence be destroyed. This article sets out the steps in the order that usually works best: regaining control, preserving evidence, freezing assets, filing a criminal complaint, and pursuing damages.
1. Why the Order Matters
The natural reaction is to confront the person or file a criminal complaint immediately. In practice, either move alerts the suspect before the company has secured its assets and records. Once alerted, a suspect can:
- move money from personal accounts or sell real estate
- transfer assets to family members
- delete emails and accounting data
- use the company seal and bank access to cause further damage
Key takeaway: Secure control and evidence first, freeze assets quietly, and only then take steps the suspect will see.
2. Step 1: Regain Control of the Company
Korean subsidiary (stock company)
① Remove the representative director
- If the company has a board of directors, the board can remove the representative director from that position by resolution.
- If the company has fewer than three directors (allowed for companies with capital under KRW 1 billion), the representative director is usually appointed and removed through the shareholders’ meeting or as set out in the articles of incorporation.
- Removing the person as a director requires a special resolution of the shareholders’ meeting. Where the parent is the sole shareholder and capital is under KRW 1 billion, a written resolution signed by all shareholders can be used, so the parent can act without a physical meeting in Korea.
- Register the change within two weeks.
② If the director refuses to step aside
- Apply to court for an injunction suspending the director’s duties and appointing an acting director.
③ Take back the company’s tools
- Company seal: the new representative director can register a new corporate seal with the registry office, so the old one can no longer be used for registered acts.
- Banks: notify every bank in writing, change authorized signatories, cancel internet banking credentials and OTP devices, and ask the bank to flag unusual transfers.
- Systems: suspend the person’s access to email, accounting software, and cloud drives, and change administrator passwords.
Korean branch of a foreign company
- A branch is not a separate legal entity. The head office appoints and replaces the Korean representative by its own resolution, and the change must be registered.
- Bank and system steps are the same as for a subsidiary.
Key takeaway: In most cases the parent can regain legal control of a Korean subsidiary within days, using shareholder and board resolutions signed abroad and notarized or apostilled as needed.
3. Step 2: Preserve the Evidence
- Accounting records: obtain the general ledger, vendor ledgers, and supporting documents directly from the outside accounting firm, not from the suspect.
- Bank statements: download full statements for all company accounts, going back as far as the suspected misconduct.
- Digital evidence: have the company’s laptops, email accounts, and servers forensically imaged by a specialist, so the evidence will hold up in court.
- Vendor checks: check the corporate registry of vendors that received unusual payments. Directors, shareholders, or addresses linked to the suspect or the suspect’s family are a common pattern.
- Interviews: speak with the finance staff and the accountant, and record what they say.
Caution: review the company’s IT and privacy policies before accessing employees’ email. Collecting personal information in breach of the Personal Information Protection Act can create a separate problem.
4. Step 3: Freeze Assets Before Anything Becomes Public
Civil provisional attachment
- The company applies to court to provisionally attach the suspect’s assets: real estate, bank deposits, vehicles, salary, and severance owed by the company.
- The court decides without notifying the suspect, often within days to a few weeks. The suspect learns of it only when the attachment takes effect.
- The company must show:
- the claim to be protected: a damages claim against the director (see Step 5), and
- the need for urgent protection: a real risk that the suspect will dispose of assets
- The court usually requires security, posted as cash or, more commonly, a guarantee insurance policy.
Finding the suspect’s assets
- Real estate: registry searches by address. Check the suspect’s home, and any addresses that appear in company records.
- Bank accounts: once the company knows which banks the suspect uses (for example, from transfers in the company’s statements), it can attach those accounts. Korean law allows attachment of deposits at named banks even if the account numbers are unknown.
- After a judgment, Korean courts can order a property disclosure and a property search across institutions.
Criminal asset preservation
- In serious cases, prosecutors can apply to preserve assets for confiscation or collection connected with the crime. Korean law has expanded this tool to cover some proceeds of fraud and embezzlement for return to victims. It depends on the prosecutor’s decision, so it complements civil attachment but does not replace it.
Key takeaway: File the provisional attachment before the criminal complaint. The complaint usually alerts the suspect.
5. Step 4: File a Criminal Complaint
Likely offenses
| Offense | Applies when | Penalty |
|---|---|---|
| Occupational embezzlement (업무상횡령) | The director takes company money or property in their custody | Up to 10 years’ imprisonment or a fine of up to KRW 30 million |
| Occupational breach of trust (업무상배임) | The director causes loss to the company in breach of duty, such as paying sham invoices or making related-party deals | Same as above |
| Aggravated offenses under the Act on the Aggravated Punishment of Specific Economic Crimes | The gain is KRW 500 million or more | At least 3 years. At least 5 years, or life imprisonment, if KRW 5 billion or more |
| Forgery and use of forged documents | Fake invoices, contracts, or board minutes | Separate offenses |
How it works
- The company (acting through its new representative director) files the complaint, generally with the police, who carry out the first investigation.
- A well-organized complaint, with a chronology, the amounts, a flow-of-funds analysis, and supporting documents, speeds up the investigation considerably.
- Investigators can obtain the suspect’s personal bank records through warrants, which the company cannot do itself.
- If the suspect is likely to flee, investigators can request an exit ban.
Settlement
- Embezzlement and breach of trust are not offenses that end when the victim withdraws the complaint, but repayment strongly affects the prosecutor’s charging decision and the sentence.
- Pressure from a criminal case often leads the suspect to offer repayment. Any settlement should be in writing, with security for payment (such as a mortgage over real estate or a guarantor).
Compensation order
- In embezzlement and breach of trust cases, the victim can ask the criminal court to order the defendant to pay compensation (a compensation order under the Act on Special Cases Concerning Expedition of Litigation). Courts often refuse when the amount is complex, so treat it as a bonus, not the main route.
6. Step 5: Claim Damages
Legal grounds
- Director’s liability to the company (Commercial Act, Article 399): a director who violates the law or the articles of incorporation, or neglects their duties, is liable to the company for the resulting loss. The limitation period is generally ten years.
- Tort (Civil Act, Article 750) and unjust enrichment.
- Accomplices and recipients: vendors, family members, or employees who knowingly took part can be sued jointly.
- Fraudulent transfers: if the suspect moved assets to family members to avoid creditors, the company can sue to set aside the transfer.
Timing
- The civil lawsuit is usually filed after the criminal complaint, or when the court orders the company to file a main action following the provisional attachment.
- Evidence gathered in the criminal investigation, and the criminal judgment itself, make the civil case much stronger.
7. Issues Specific to Foreign Parent Companies
- Who the claimant is: for a subsidiary, the Korean company is the victim and the claimant, not the parent. For a branch, the foreign company itself is the claimant.
- Documents from abroad: board and shareholder resolutions and powers of attorney signed abroad usually need notarization and an apostille, plus Korean translations. Prepare them in parallel with Step 1.
- Was the director also an employee? Unregistered “executives” may be employees under Korean labor law, so dismissal must follow labor law procedures. Registered directors are generally not employees.
- Insurance: check whether the group has crime or fidelity insurance covering employee dishonesty, and notify the insurer promptly. Late notice is a common reason for denied claims.
- Tax: when a representative director diverts company funds, Korean tax rules may treat the amount as income paid out to that person, with withholding and other tax consequences for the company. Recording the company’s damages claim properly and pursuing recovery can affect this treatment. Involve a tax adviser early and file amended returns if needed.
- Accounting: restate the books to reflect the losses and the recovery claims.
8. Timeline at a Glance
| Timing | Action |
|---|---|
| Days 1–3 | Remove the representative, change bank signatories and system access, secure the seal |
| Week 1 | Obtain records from the accounting firm and banks, forensic imaging |
| Weeks 1–3 | Flow-of-funds analysis, identify the suspect’s assets, file provisional attachment |
| After attachment | File the criminal complaint |
| In parallel | Notify the insurer, start on tax and accounting clean-up |
| Following months | Civil damages claim, settlement talks, fraudulent transfer actions |
Regain control → Preserve evidence → Provisional attachment → Criminal complaint → Damages claim → Recovery or settlement
9. Conclusion
When the head of a Korean subsidiary or branch has diverted funds, the order of steps often decides how much the company recovers. The parent should first take back control of the company, its seal, and its bank accounts, then preserve the evidence, then freeze the suspect’s assets quietly through provisional attachment. Only after that should it file the criminal complaint, which brings in investigators’ powers and settlement pressure, and pursue damages against the director and anyone who helped.
Foreign parents can do almost all of this from abroad, provided the resolutions, powers of attorney, and evidence are prepared quickly and in the right form.