Japanese legal procedures relating to insolvency are undergoing substantial reform. As a part of these reforms, many amendments to the Corporate Reorganization Law were promulgated on December 13 2002 and are scheduled to take effect on April 1 2003. The pre-amendment Corporate Reorganization Law provided a very rigid reorganization procedure, especially for large-scale companies with many creditors, employees and other stakeholders. The main purposes of the amendments are to create a swift reorganization procedure for companies and to establish more flexible reorganizing measures.
Swift reorganization procedure
The amendments make the reorganization procedure swifter. The changes include:
- the introduction of easier requirements for the court to make a decision on the commencement of the reorganization procedure;
- more specific deadlines: the deadline for submitting a reorganization plan to the court will generally be within a year from the date of commencing the reorganization procedure;
- the creation of a simple procedure for evaluating the debtor's assets subject to security interests;
- the introduction of easier requirements for the reorganization plan to be approved by the stakeholders;
- the introduction of easier requirements for the court to close the reorganization procedure.
Flexible reorganizing measures
The amendments also give the court and the reorganization trustee greater powers. For example:
- in certain cases, after the commencement petition is filed, the court may order all creditors not to enforce their claims against the debtor's assets until a decision is made relating to the petition;
- subject to court approval the reorganization trustee will be able to transfer all or part of the debtor's business even before the confirmation of the reorganization plan;
- the court is granted a statutory power to release the debtor's asset from security interests. However, such release is subject to the reorganization trustee's payment of the asset's price to the court.
Other changes include:
- A petition for the commencement of the reorganization procedure will now be able to be filed in the Tokyo or Osaka district court even if there is no main office of the debtor in Tokyo or Osaka. Each of these courts has a special reorganization department.
- The debtor's assets will not be evaluated on a continuing concern basis but on a market price basis. The time of valuation will be at the time of commencement of the reorganization procedure.