JAPAN Law and Practice Contributed by: Hajime Ueno, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
4.4 The Position of the Debtor in Restructuring, Rehabilitation and Reorganisation Civil Rehabilitation
rehabilitation, secured creditors are, as a general rule, outside the proceedings, so they would not be bound. Challenge An immediate appeal may be filed against a Plan Con - firmation Order (or an order not to confirm) by credi - tors, or the debtor, etc. 4.3 The End of the Restructuring, Rehabilitation and Reorganisation Procedure In civil rehabilitation, a rehabilitation plan will need to be voted on, approved and confirmed, whereas in corporate reorganisation, a Plan will need to be voted on, approved and confirmed. In either case, confirma - tion of a Plan should be confirmed by the court; and a Plan should meet the feasibility test (whether the Plan is likely to be executed) and the best interests of creditors test (whether the Plan meets the common interests of creditors) in a civil rehabilitation or the fair and equitable test (whether the content of the Plan is fair and equitable) in a corporate reorganisation, to be confirmed by the court. In Japan, a restructuring or reorganisation agreement other than the Plan is not executed among the debtor, creditors and other parties, in general. The approved and confirmed Plan will bind the debtor and creditors. Neither of these statutory proceedings releases non- debtor parties from liabilities. A Plan will not affect any rights held by creditors against the debtor’s guarantor or any other person who owes debts jointly with the debtor, and any security provided by persons other than the debtor in the interests of creditors. If it has become obvious that the Plan is unlikely to be implemented, the court shall issue an order discon - tinuing the proceedings. The discontinuation of the proceedings may cause bankruptcy to commence. However, a discontinuation of the proceedings after the Plan has been confirmed will not affect any effects arising from the implementation of the Plan. For exam - ple, discharges from claims, changes of creditors’ or shareholders’ rights, or the issuance of new shares, etc, which were implemented based on the Plan will remain in effect. In general, however, in a statutory reorganisation proceeding, it is rare to include any obligations imposed on creditors as a part of the Plan.
The norm is that the debtor, even after a proceed - ing is commenced, will continue to have the rights to carry out its business or administer or dispose of its property (the statute provides for an exception where the competent court could appoint a trustee to take over those rights), in which case the debtor’s incum - bent managers generally continue its operation, pro - vided that the court and the supervisor appointed by the court will supervise the debtor. The debtor shall have the obligation, vis-à-vis creditors, to exercise the above rights and conduct rehabilitation proceedings in a manner “fair and sincere” to all creditors. Corporate Reorganisation Once the proceedings are commenced, the rights and authority to manage the debtor’s business and to administer and dispose of the debtor’s assets will be vested exclusively in one or more trustees appointed by the court. Prior to the appointment of the trustee (ie, prior to the commencement), the court and a provisional administrator or the examiner appointed by the court will supervise the debtor. Normally, the provisional administrator will be appointed as a trus - tee. The trustee will be overseen by the court, and will need to obtain approvals from the court to con - duct corporate actions and transactions, other than those that fall within the debtor’s ordinary course of business. As with a civil rehabilitation, the trustee, on behalf of the debtor, can borrow money even during the proceedings, but the approval of the court may be required. A trustee owes a duty of care and duty to provide information, is restricted from transacting with the debtor on their own behalf and owes non-compete obligations. However, there are some cases where an incumbent management is appointed by the court as a trustee, and such person continues to manage the business. In such case, the court appoints a third party as an examiner or a supervisor who oversees the debtor. Restrictions on a Company’s Use of Its Assets The norm is that the debtor will be permitted to use its assets for its business during a formal restructur - ing proceeding within the ordinary course of business.
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