Japanese corporate reconstruction – overview

January 25, 2010  |  Corporate Recovery

Gunkanjima - an uninhabited Japanese island badly in need of reconstruction

Varieties of Japanese corporate reconstruction

As is the case in many jurisdictions in Japan means of corporate reconstruction can be divided into two broad categories:  Private corporate reconstructions – shitekisaisei – 私的再生 – and reconstructions further to specified legal process – houtekisaisei – 法的再生. Shitekisaisei are private agreements among creditors or between creditors and the debtor concerned.  They would typically include the following types of agreements:

  • Debt rescheduling involving the extention of debt repayment or ammendment of terms
  • Debt – debt swaps typically involving one part of the debt being reduced in priority to others, perhaps becomign unsecured
  • Debt-equity swaps
  • Discharge of indebtedness
  • Introduction of new funds through equity placement or similar

The houtekisaisei under court process include minjisaisei – 民事再生, kaishakousei – 会社更生 and the tokuteichouteihou – 特定調停法 (which is not discussed further here, the principal purpose being court negotiated extension of payment period).  The minjisaisei process established in 2000 is intended to be more speedy and allow the orginal management to remain in place.  The kaishakousei process has been reformed to ease conditions for creditor agreement and more recently to allow debtor in possession financing.

While in theory both the minjisaisei and kaishakouse processes allow subject companies to recover under their own power in practice a sponsor will generally be involved bringing additional capital to the reconstruction plan.  Such a sponsor may typically be involved in the following ways:

  • Undertaking to inject new capital into the subject company
  • Acquiring existing equity for no or nominal consideration and then injecting further funds into the company, perhaps through an issue of a new class of shares
  • Establishing a new company for the purposes of purchasing the business of the subject company or involving in merger or corporate split

An advantge of the second of the above methods is that it avoids the transaction costs, including taxes, associated with a business transfer but of course risks hidden liabilities being retained in the original company.

Finally alternative dispute resolution under court supervision is also possible as means of corporate reconstruction.

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