Supreme Court: "Jeil Savings Bank's Bad Loans, Auditors Also Liable for Compensation... Failed to Fulfill Duty"

[Asia Economy Reporter Kim Hyung-min] The Supreme Court has ruled that even if an auditor at a financial institution does not have evidence proving they knew about illegal or improper circumstances during the process of non-performing loans, they can still be held liable for damages if they failed to fulfill their obligation to request corrective action.

The Supreme Court's Second Division (Presiding Justice Park Sang-ok) overturned the lower court's ruling, which had dismissed the claim, and remanded the case to the Seoul High Court on the 14th. The case involved a damages lawsuit filed by the Korea Deposit Insurance Corporation, the bankruptcy trustee of Jeil Savings Bank, against former auditors A and B of Jeil Savings Bank.

The court stated, "If the loan documents had been reviewed with the duty of care of a prudent manager, it would have been easy to recognize that each loan was made without sufficient measures to secure the claims," adding, "There is ample reason to believe that the auditors did not fulfill their duties."

The court particularly pointed out that under Jeil Savings Bank's job regulations, full-time auditors were required to review loans exceeding 100 million won both before and after approval, yet no opinions were expressed regarding the non-performing loan documents, which was problematic.

Jeil Savings Bank was designated as a non-performing financial institution by the Financial Services Commission in 2011 after excessively issuing non-performing loans, and was declared bankrupt the following year.

Between January 2006 and June 2011, Jeil Savings Bank issued 31 loans totaling 102 billion won to the Comprehensive Terminal Goyang, but failed to recover 76 billion won of that amount.

The Korea Deposit Insurance Corporation filed the lawsuit claiming that auditors A and B, while serving as auditors at Jeil Savings Bank, caused damage to the company by merely formally signing off on non-performing loans approved by the directors without proper management.

The first trial recognized that A and B neglected their duties as auditors and ordered them to pay damages of 400 million won and 500 million won respectively to the Korea Deposit Insurance Corporation.

However, the second trial ruled that there was no evidence that A and B signed the documents before loan approval and thus held them not liable for damages.

The court also cited precedent stating that auditors are only obligated to investigate "when they could have known that the loan was illegal or improper," and found no evidence that A and B, who were not involved in management at the time, were aware of the circumstances of the non-performing loans.

This content was produced with the assistance of AI translation services.