Japan: The future of turnarounds

Author: | Published: 24 Aug 2015
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Nagashima Ohno & Tsunematsu

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Narifumi Takeuchi
In Japan, out-of-court methods are available for restructuring debts owed by corporate debtors, a procedure referred to as alternative dispute resolution turnaround (ADRT).

In ADRT, the participation of mainly financial institutions as relevant eligible creditors (creditors whose rights will be impaired if a rehabilitation plan were to be established) is intended. In addition, the ADRT process is presided over by a few third party professionals who are selected from members of the Japanese Association of Turnaround Professionals (JATP), which is comprised of professionals, such as attorneys-at-law, CPAs (certified public accountants), and CPTAs (certified public tax accountants).

At present, all Japanese out-of-court methods for restructuring debts, including ADRT, require that each of the relevant eligible creditors consent to the rehabilitation plan for the said plan to be established. However, a committee, whose members include rehabilitation professionals, such as attorneys-at-law and scholars, has recently been considering the possibility of establishing a rehabilitation plan based on the consent of the majority of relevant eligible creditors. The members of this committee also include, as observers, representatives from the Ministry of Economy, Trade and Industry, the Financial Services Agency and the Ministry of Justice.

The committee has been considering two ideas for creating a rehabilitation plan by the consent of the majority of relevant eligible creditors. One idea is to conduct all the procedures, including the resolution on a proposed rehabilitation plan, by the consent of the majority of relevant eligible creditors, within the ADRT procedure. Under this idea, corporate debtors will not need to petition for the commencement of legal proceedings to establish a rehabilitation plan, but will be required only to procure the consent of the majority of relevant eligible creditors. The other idea is to establish a rehabilitation plan by the consent of the majority of relevant eligible creditors within the legal proceedings under the provisions of the Japanese Civil Rehabilitation Act, while the other procedures would be conducted during the ADRT process.

If either of the committee's ideas is realised, it will have a significant influence on debt restructuring for financial institutions. Therefore, it is imperative to keep a cautious and close watch on the direction in which committee will proceed with these two ideas.

Narifumi Takeuchi