JAPAN Law and Practice Contributed by: Hajime Ueno, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
creditors class and financial creditors class, rarely if ever is such power exercised in Japan. 2.2 Priority Claims in Restructuring and Insolvency Proceedings In bankruptcy, civil rehabilitation and corporate reor - ganisation, administrative expenses, a part of employ - ee wages and tax claims, as well as claims that arise during the proceedings for the common benefit of the creditors are categorised as “common benefit claims”, which have payment priority senior to general claims. Administrative expenses would include, for instance, financial advisers’ fees and legal fees incurred post- commencement of such proceedings. Secured creditor claims have priority over common benefit claims to the extent of the value of the rel - evant collateral. Hence, common benefit claims’ pri - ority over secured creditors is limited to the amount uncovered by such value. New Money DIP financing claims (arising after a proceeding com - mences and with approval from the supervisor/court) are treated as common benefit claims. It is also pos - sible to secure them by the assets of the debtor (with the court’s approval). It is not possible to have priority over pre-existing secured creditors’ liens (without their consent), meaning that in Japan, super priority/prim - ing liens in US Chapter 11 are not available. 2.3 Secured Creditors Typical liens/security interests on each type of asset in Japan would be as follows. Real Estate Under most statutes in Japan, land and any fixtures on it comprise real estate (immovable property). Buildings are the most common type of fixture and are subject to a property registration system separate from that of land. Forms of security interests over real estate are as fol - lows: • security interests under statutes, such as: (a) mortgages ( teito-ken ); (b) umbrella mortgages (which function like a
revolving mortgage ( ne-teito-ken )); (c) pledges ( shichi-ken ) over immovable property; (d) statutory liens ( sakidori-tokken ) on immovable property granted to a claimant who has a claim arising from the preservation of the immovable property, construction work on the immovable property or the sale of the immovable property; (e) repurchase arrangements ( kaimodoshi ); and (f) provisionally registered ownership transfers ( kari-touki-tanpo ); • security interests recognised by court precedents (without any statutes providing for these security interests), such as: (a) security interests by way of assignment ( joto- tanpo ) (security assignments); (b) pre-agreed resale transactions ( sai-baibai-no- yoyaku ); and (c) retentions of title ( shoyuuken-ryuuho ). Mortgages and revolving mortgages are created by agreement between the creditor and the owner of the immovable property, and are perfected by reg - istration in the relevant property registry. However, the agreement creating a revolving mortgage must specify (i) the scope or type of claims to be secured (usually specified by identifying the transaction type, for example a “lending money transaction”) and (ii) the maximum amount to which the revolving lender has preferential rights (ie, open revolving mortgages are not allowed). Unless perfected, mortgages and revolving mortgages would not be effective vis-à-vis third parties. Movable Property Any tangible thing or item ( butsu ), which is not real estate, comprises movable property. Mortgages can - not be created over typical movable property. How - ever, construction machinery, as well as aircraft and registered ships, can be subject to mortgages under certain specific statutes that provide exceptions to the Civil Code. A pool of movable properties is not recog - nised as a single movable property. This is because the concept of a thing or item under the Civil Code is based on tangibility. Further, a single right cannot be established over a pool of movable properties under the legal doctrine that only grants a single right over a single property (subject to limited exceptions). How - ever, particularly in relation to trading stock (inven -
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