Insolvency Law at Japan
Japan's insolvency framework is designed to offer a range of procedures tailored to different types of debtors, including individuals, corporations, and partnerships. The system encompasses both liquidation and rehabilitation options, with provisions for cross-border insolvency and recent advancements in digitalization. (Others: Japan Legal Update : Digitalization of Civil Court Proceedings other than Civil Litigation by Enactment of Act on Establishment of Related Laws to Promote the Utilization of Information and Communication Technology in Civil Proceedings | Anderson Mori & Tomotsune)
⚖️ Key Insolvency Procedures in Japan
1. Liquidation Procedures
Bankruptcy (Hasan): Applicable to individuals and various business entities, this procedure involves the appointment of a bankruptcy trustee to manage the debtor's estate, liquidate assets, and distribute proceeds to creditors. It is initiated when the debtor is unable to pay debts as they become due. (Bankruptcy Act - English - Japanese Law Translation)
Special Liquidation (Tokubetsu-Seisan): Exclusive to stock companies (kabushiki kaisha), this procedure allows for the liquidation of a company under court supervision. A liquidator is appointed to oversee the process, which is generally quicker and less formal than bankruptcy proceedings. (Insolvency 2024 - Japan | Global Practice Guides | Chambers and Partners)
2. Rehabilitation Procedures
Civil Rehabilitation (Minji-Saisei): Modeled after the U.S. Chapter 11, this procedure enables debtors to propose a rehabilitation plan while retaining management control. It is primarily used for individuals and small to medium-sized enterprises. Secured creditors are not bound by the plan unless they consent. (Insolvency 2024 - Japan | Global Practice Guides | Chambers and Partners)
Corporate Reorganization (Kaisha-Kousei): Designed for large corporations, this procedure involves a court-appointed trustee who takes over management to implement a rehabilitation plan. Unlike civil rehabilitation, secured creditors are bound by the plan. The procedure is more formal and complex, often involving multiple creditors and stakeholders. (Insolvency 2024 - Japan | Global Practice Guides | Chambers and Partners)
3. Special Conciliation (Tokutei-Chotei)
This hybrid procedure combines elements of in-court and out-of-court processes. It involves a court acting as an independent third party to facilitate negotiations between the debtor and creditors. The court intervenes only if an agreement is unlikely to be reached, issuing orders that have the same effect as a successful conciliation if no objections are raised. (Insolvency 2024 - Japan | Global Practice Guides | Chambers and Partners)
🌐 Cross-Border Insolvency
Japan has taken steps to address cross-border insolvency issues. The Law on Recognition and Assistance in Foreign Insolvency Proceedings (LRFIP), enacted in 2020, allows foreign insolvency proceedings to be recognized and enforced in Japan. Under this law, foreign trustees must be appointed as recognition trustees to represent the debtor in Japanese courts. The law also permits the suspension of execution procedures and foreclosures against the debtor's assets during the recognition process. (Japans New Law on Recognition of and Assistance in Foreign Insolvency Proceedings | ABI)
💻 Digitalization of Insolvency Proceedings
In June 2023, Japan passed legislation to facilitate the digitalization of civil court proceedings, including insolvency cases. The Act, set to be implemented by June 2028, will enable online filing of petitions, submission of proofs of claims, and participation in court hearings via videoconferencing. Bankruptcy trustees will also be required to submit reports and documents electronically, streamlining the insolvency process and improving accessibility. (Trends and developments in restructuring and insolvency in post-pandemic Japan - Global Restructuring Review, Others: Japan Legal Update : Digitalization of Civil Court Proceedings other than Civil Litigation by Enactment of Act on Establishment of Related Laws to Promote the Utilization of Information and Communication Technology in Civil Proceedings | Anderson Mori & Tomotsune)
📌 Practical Considerations
Eligibility: Bankruptcy is available to individuals and various business entities, while special liquidation is exclusive to stock companies. (Insolvency 2024 - Japan | Global Practice Guides | Chambers and Partners)
Commencement: In bankruptcy, proceedings can be initiated by a creditor or the debtor. For special liquidation, a petition must be filed by a creditor, liquidator, company auditor, or shareholder. (Insolvency 2024 - Japan | Global Practice Guides | Chambers and Partners)
Creditor Priority: In bankruptcy, creditors' claims are ranked in the following order: estate claims, superior bankruptcy claims, ordinary bankruptcy claims, and subordinated bankruptcy claims. In special liquidation, claims are divided into two categories, with the first category having priority over the second. (Restructuring & Insolvency Laws and Regulations Report 2024-2025 Japan)
Duration: Civil rehabilitation proceedings must result in an approved plan within six months, with a maximum repayment period of 10 years. Corporate reorganization proceedings are subject to court supervision and may involve multiple creditors and stakeholders. (Insolvency 2024 - Japan | Global Practice Guides | Chambers and Partners)
RELATED Blog
0 comments