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Special measures concerning the 2011 earthquake

Yumiko Wada

On March 11 2011 at approximately 14:46 JST, a 9.0-magnitude earthquake struck off the Sanriku Coast of Japan. Shortly afterwards, a huge tsunami from the Pacific Ocean swept across the cities and villages of the Tohoku region of Japan, causing tremendous devastation to lives and property. Two days later, the Japanese government promulgated a cabinet order which designated the Earthquake a Specified Unforeseen Disaster pursuant to the Act Concerning Special Measures for Protection etc of Rights and Interests of Victims of Specified Unforeseen Disasters. Such designation under the Act allows for certain special measures to come into effect in response to the earthquake. Some of these were enacted in relation to the Financial Instruments and Exchange Law (FIEL). In addition, special regulations were announced by the Tokyo Stock Exchange (TSE) in response to the earthquake.

Financial Instruments and Exchange Law

Under the FIEL, a Japanese company that is required to file an annual securities report must file it within three months after the end of its fiscal year, and a company that is required to file a quarterly report must file it within 45 days after the end of each relevant fiscal quarter. However, as a result of the special measures, if a company fails to file such report within the required time period "due to the earthquake", but files the report by June 30 2011, the company will be discharged from any administrative or criminal liabilities it would otherwise be subjected to for failing to file the report by the original due date. According to the Financial Services Agency (FSA), in addition to cases where a company's head office has been materially damaged by the earthquake, "due to the earthquake" may mean its indirect effects, including, among other things, cases where a company finds it difficult to settle its accounts because its branch office, or one of its factories or material business partners have been harmed by the earthquake.

Under the FIEL, a company that is required to file an annual securities report must file an extraordinary report whenever matters which are material (as specified in the FIEL) to investors occur or are decided by such company, "without delay". According to the FSA, if a company is unable to prepare such extraordinary report due to the earthquake, but files it as soon as practicable after the specific circumstances which led to the delay have been cured, it will be treated as being filed without delay. Furthermore, the FSA has announced that in the case of a company that is able to prepare an extraordinary report but is unable to calculate the book value of its assets affected by the earthquake, such company will be allowed to (i) first file an extraordinary report that states the occurrence of a major disaster; and (ii) after the calculation of the approximate book value of its assets destroyed by the earthquake, file an amended extraordinary report which sets forth, among other things, such amount.

Tokyo Stock Exchange

On March 23 2011, the TSE announced special measures for the handling of earnings announcements by listed companies. Under TSE regulations, annual earnings announcements are expected to be made within 45 days after the end of each fiscal year and quarterly earnings announcements are required to be made within 45 days after the end of each relevant quarter. However, as a result of the earthquake, such announcements may be delayed until after the company has been able to confirm its financial data, even if such confirmation happens after the respective normal deadline for the annual and quarterly earnings announcements. Moreover, in the event it is impossible for a listed company to provide an earnings forecast due to the earthquake, such company will not be required to include an earnings forecast in its annual and quarterly earnings report.

In addition, the TSE announced special measures for handling delays in the submission of annual securities report and quarterly reports. According to the regulations of the TSE, if a listed company delays its submission of an annual or quarterly report, such company will be designated a company whose securities are under the supervision of the TSE, and the TSE will monitor whether or not the company violates the TSE's delisting criteria. However, for listed companies to which the special measures concerning annual or quarterly reports described above apply, the submission deadline stipulated by the special measures (June 30 2011) will be regarded as the deadline for the submission of the reports in the application of the above TSE regulations.

Furthermore, in the event that an auditor describes, in its audit report attached to company financial statements or its quarterly review report attached to quarterly financial statements, that the auditor does not express its opinions on the financial statements or quarterly financial statements because it was not provided a reasonable basis to form an opinion due to the earthquake, the company's securities will not be designated as securities under the supervision of the TSE or subject to delisting.

Yumiko Wada

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