JAPAN Law and Practice Contributed by: Taro Omoto, Yusuke Nakajima and Makoto Sakai, Mori Hamada & Matsumoto
triation of realisation proceeds under a loan, guarantee or security document; see 2.1.4 Exchange Controls . 3.1.3 Granting of Security to Foreign Lenders Borrowers are permitted to grant security to foreign lenders. 3.1.4 Downstream, Upstream and Cross-Stream Guarantees Downstream, upstream and cross-stream guarantees in favour of lenders are permitted. No consideration, corporate benefit or registration is required for a guarantee to be valid. However, in providing the guarantee, directors need to fulfil their duty of care. If there is not a 100% capital relationship between the guarantor and the obligor, a corporate approval of the conflict of interest transaction may be required, depending on the circumstances. 3.1.5 Lenders’ Share in Security Over Domestic SPVs As a step-in right, it is advisable for a lender to have a security interest over the shares of the Japanese special purpose company that owns the financed aircraft. A pledge of shares ( kabushiki shichi ken ) is recognised. 3.1.6 Negative Pledges A negative pledge is generally recognised. 3.1.7 Intercreditor Arrangements No material restrictions or requirements are imposed on intercreditor arrangements. 3.1.8 Syndicated Loans The concept of agency and the role of an agent such as the facility agent under a syndicated loan are rec - ognised. 3.1.9 Debt Subordination In practice, the following two methods of debt subor - dination are often used. Condition Method An agreement between the subordinated creditor and the debtor to repay the subordinated creditor on
the condition that the preferential claims have been repaid. Consensually Subordinated Insolvency Claim An agreement between the subordinated creditor and the debtor that, in the event of the commencement of insolvency proceedings, the claim will be treated as a consensually subordinated insolvency claim in such proceedings, pursuant to the insolvency laws. 3.1.10 Transfer/Assignment of Debts Under Foreign Laws The transfer or assignment of an outstanding debt under an English or New York law-governed loan is permissible and recognised, provided that such trans - fer or assignment is valid under English law or New York law. 3.1.11 Usury/Interest Limitation Laws The Interest Rate Restriction Act (Act No 100 of 15 May 1954) provides for a limitation on maximum inter - est rates. The maximum annual interest rates permit - ted under the Interest Rate Restriction Act are as fol - lows, and an agreement is void and unenforceable in respect of any amount in excess thereof: • if the principal amount is less than JPY100,000, the interest rate is 20%; • if the principal amount is between JPY100,000 and JPY999,999, the interest rate is 18%; and • if the principal amount is JPY1 million or more, the interest rate is 15%. 3.2 Security 3.2.1 Typical Forms of Security and Recourse A typical security package for an aircraft financing transaction for a Japan-registered aircraft is as fol - lows: • aircraft mortgage under the Aircraft Mortgage Act (Act No 66 of 1953); • security assignment (lease receivables, insurance claims, warranties, etc); • account pledge; • share pledge (if the owner is a special purpose corporation); and • parent undertaking (if the owner is a special pur - pose corporation).
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