JAPAN Law and Practice Contributed by: Hajime Ueno, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
depends on the negotiations between the trustee or liquidator and the purchaser. Existing Agreements Essentially, the same applies as in the cases of restructuring-type insolvency proceedings (see 4.4 The Position of the Debtor in Restructuring, Reha- bilitation and Reorganisation for the definition). Arbitration Creditors will have a slim chance of opting for arbitra - tion as opposed to court proceedings in the context of Japanese liquidation procedures. 5.3 The End of the Liquidation Procedure(s) Completion of Procedures As these are liquidation procedures, the end result is to dissolve the debtor company. Therefore, once the trustee/liquidator completes liquidation of all assets and distributions of the estate to creditors, the debtor company will be dissolved. If the assets are greater than the liabilities, the bankruptcy/special liquidation proceeding would be terminated and the remaining assets would revert back to the debtor company (and eventually be distributed to equity holders). Length of Process For both bankruptcy and special liquidation, the length of the process may vary from case to case, but the shortest would take three to four months, while the longest could take more than a year. 5.4 The Position of Shareholders and Unlike in corporate reorganisations, secured creditors would still enjoy legal rights to enforce and foreclose on collateral in bankruptcy and special liquidation. However, similar to civil rehabilitation proceedings, they may separately be subject to a court’s discre - tionary stay order in certain circumstances. Creditors in Liquidation Rights of Secured Creditors When secured creditors are allowed to enforce/fore - close outside the insolvency proceedings, they would remain subject to contractual intercreditor covenants. On the other hand, secured creditors would only have indirect powers to influence the outcome of bank -
ruptcy or special liquidation proceedings in that they have no voting right and only have the right to decide whether or not to exercise and enforce/foreclose on their rights as secured creditors. Rights and Remedies for Unsecured Creditors An unsecured creditor who is opposed to bankruptcy may, as a party having a “legal interest” in the case, immediately appeal against the commencement order. In addition, the creditors who prefer “restructuring- type proceedings” may file a petition for civil reha - bilitation or corporate reorganisation as a counter - measure to bankruptcy. After the proceedings are commenced appropriately, unsecured creditors have the right to participate in the proceeding by filing their claims, and receive a distribution on a pro rata basis if a bankruptcy estate is formed (in bankruptcy). Rights of Set-Off A creditor can set off its pre-petition obligation with a pre-petition claim against the debtor. However, a cred - itor can set off only until the expiration of the claims filing period, and when the time that the obligations of both parties become due and suitable for set-off has arrived before the expiration of the claim filing period. As long as these conditions are met, set-off will not be suspended or stayed in the absence of a consensual agreement. Stay In cases of bankruptcy and special liquidation, there is no “automatic stay” in Japan. Pre-commencement The court may issue a temporary restraining order that prohibits the disposition by the debtor of its property. By this order, the debtor is prohibited from making payments or disposing of collateral. To prohibit a com - pulsory execution, or to stay a foreclosure on a secu - rity interest, the debtor needs to obtain a separate “pre-commencement stay order”. Post-commencement Payment of a pre-petition obligation is prohibited in general. However, since a security holder can exercise its right outside the bankruptcy and special liquida - tion proceedings, the debtor needs to obtain a “post-
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