On May 26 2017, an amendment to the Civil Code was enacted and will be enforced within three years from the promulgation date of June 2 2017. The aim of this Amendment is to comprehensively reform the law in respect of obligations in the Japanese Civil Code. Although many of the provisions were revised based on existing case law and commonly accepted theories in Japan, this Amendment will have a significant effect on Japanese legal practice because: (i) it covers a broad range of legal issues, which include statutory interest rates, statutes of limitations, default, cancellation of contracts, damages, assignments of claims, set-offs and guarantee obligations; and, (ii) it introduces some new rules. This article covers some of the new rules introduced by the Amendment.
Statutory interest rates: the statutory interest rate is fixed at five percent per annum under the prevailing Civil Code and the statutory interest rate for commercial affairs is fixed at six percent per annum under the existing Commercial Code. The Amendment will adopt a floating interest rate (three percent at the time the Amendment becomes effective), which will be reviewed every three years in accordance with the average market interest rate, and the statutory interest rate for commercial affairs will be abolished.
Statutes of limitations: the general statute of limitations for a claim is 10 years from the time when the claim can be exercised under the existing Civil Code. There are exceptions where the period is shorter, these being the statute of limitations for certain claims related to occupations (ranging from one to three years) under the prevailing Civil Code and the statute of limitations for commercial affairs (five years) under the existing Commercial Code. The Amendment will repeal such exceptions and adopt a uniform rule for the statute of limitations for a claim. The new general statute of limitations will be: (i) five years from the time when creditors become aware that a claim can be exercised; or, (ii) 10 years from the time when a claim can be exercised, whichever is earlier.
Restrictions on personal guarantees: the Amendment will impose several restrictions on guarantees given by an individual for a monetary loan owed by a principal debtor for the debtor's business, as follows: (i) such guarantee will not be effective unless the proposed individual expresses the intent to perform the guarantee obligations in a notarised document within one month before the execution of a guarantee agreement; and, (ii) the principal debtor will be required to disclose to the individual guarantor certain information, including the status of its property and its income and expenditures. However, restriction (i) above will not apply to a personal guarantee provided by the principal debtor's management.
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