JAPAN Law and Practice Contributed by: Hajime Ueno, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
Differences Between Bankruptcy and Special Liquidation The differences between bankruptcy and special liq - uidation are as follows. In both cases, the proceedings are commenced by filing a petition with the court. With respect to the requirements to commence, in bankruptcy the debtor must be insolvent, whereas in special liquidation it is sufficient that the debtor is suspected of being insol - vent. • In both cases, creditors’ claims are recognised by the debtor by filing claims. • In both cases, the schedule of the procedures, including the creditors’ meetings, are decided by the court at the time of commencement. An inven - tory of assets and income and expenditure state - ments will be provided to creditors at the creditors’ meeting. • In bankruptcy, the debtor is prohibited from repay - ing the bankruptcy claims after commencement in general. In special liquidation, the debtor cannot repay the claims during the period the claims are being filed, but after that period the debtor can repay the claims on a pro rata basis. Also, in both cases, commencement causes foreclosures or litigation against the debtor to cease. Furthermore, in both cases, after commencement, set-off by pre-commencement claims is prohibited in general. While the trustee is granted a right of avoidance, the liquidator does not have such a power. • At commencement, while the trustee is appointed by the court in bankruptcy, the liquidator who is designated by the debtor is appointed by the court. The trustee has the power to terminate a contract that has not been performed by both parties, but the liquidator has no such power. • In bankruptcy, distribution from the formed bank - ruptcy estate is made to the creditors on a pro rata basis, whereas in special liquidation, repayments are made pursuant to the approved agreement or individual settlement agreement with each creditor. Respective requirements/criteria for commencement of these proceedings are as follows.
to be recognised. Civil law governs the transfer of claims and perfection thereof. Existing Equity Owners Existing equity owners can receive a distribution from the debtor only when all creditors superior to the equi - ty owners are paid in full. In practice, and because the statutes require a “threat” of insolvency to commence proceedings, the debtor acquires existing shares with no consideration and these existing shares will be cancelled based on the Plan. New shares will be issued to a sponsor in exchange for new money. 5. Statutory Insolvency and Liquidation Procedures 5.1 The Different Types of Liquidation Procedure Overview As noted above, insolvent companies may be liqui - dated voluntarily or involuntarily by bankruptcy ( hasan ) or special liquidation ( tokubetsu-seisan ). The pros and cons of special liquidation are as fol - • Special liquidation does not require the same rigor - ous procedure as bankruptcy proceedings, so the process proceeds relatively quickly. • A liquidator can be selected by the debtor. • compared to bankruptcy, special liquidation is gen - erally viewed as allowing the debtor to avoid being labelled negatively. Cons • It is available only to stock companies. • It cannot proceed without the consent of two-thirds or more of the creditors (based on the total amount of claims). lows. Pros Due to the cons, special liquidation is normally used when there are only a handful of co-operative credi - tors, or when the parent company liquidates a subsidi - ary, with the parent holding the majority of the claims.
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