On October 3 2005, a new registration system to record the transfer of title to movable assets began operation. The new system aims to facilitate financial transactions involving chattel mortgages and securitization of movables by making the transfer of movables more secure and reliable.
Previously, transfer of title to movables was not publicly registered and as such it was difficult to determine the legal status of particular movables. According to the general rules of the Civil Code of Japan, a transfer of title to a movable can be perfected against third parties by, among other methods, physical delivery of the movable to the transferee or by the transferor's declaration that the transferor possesses the movable on behalf of the transferee (a possession declaration), which is commonly used to create mortgages. The latter causes the legal title to a movable to be unclear to third parties because legal title is transferred to the transferee/mortgagee without any apparent change in possession.
Under the new system, established pursuant to the latest revision to the Law Concerning Special Exceptions, etc to the Civil Code with Respect to the Perfection of the Assignment of Chattel and Claims (the New Perfection Law), a transferor/pledgor and transferee/pledgee can jointly apply to the Tokyo Legal Affairs Bureau to register the transfer of title to, or creation of a pledge upon, a movable. Although only corporate entities may avail themselves of this new system as a transferor/pledgor, non-corporate entities may apply as a transferee/pledgee. In the application, the targeted movable must be identified either by: (a) type and character (such as serial numbers specifying individual movables); or (b) type and location. Registration will perfect the transfer or pledge against any third parties pursuant to the revised New Perfection Law. In general, each registration remains in force for a maximum of 10 years. Information regarding registrations is maintained by the Bureau and publicly available upon online application, but certain information that could identify the asset or obligor is only available to certain interested parties.
The new registration system applies to all transfers or creations of a pledge upon movables. So this registration system can be used for securitization of movables such as inventory or equipment where, typically, the movables are entrusted to a trustee as trust assets and the incoming cash flow (such as sales proceeds) is distributed among beneficiary investors.
Because the existing methods for perfecting a transfer, such as possession declaration, are also effective, any preceding perfection by such methods supersedes the registration under the new system. The purchaser or pledgee of movables should conduct a due diligence review to ensure the absence of any prior transfer of movables as well as prior registration.