JAPAN Law and Practice Contributed by: Hajime Ueno, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
7. Duties and Liability of Directors and Officers 7.1 Duties of Directors In general, officers and directors of a Japanese com - pany owe a general duty of care of a good manager and a fiduciary duty to the company; the two con - cepts are often not distinguished in Japan as the laws of other jurisdictions often do, and the terms can be used interchangeably. They are generally understood as consisting of a duty of care and a duty of loyalty to the company. If a breach of these duties is the cause of the company’s financial predicament, the directors and officers may be personally liable to the company for damages. Although there is academic discussion about whom these duties are actually owed to, the language in the relevant statute refers explicitly to the “company” rather than, for example, the shareholders. Therefore, the conventional understanding is that they must con - sider the interests of the company as a whole. Nev - ertheless, in practical terms, considering the interests of the shareholders is typically the most appropriate way to gauge what constitutes the company’s best interest. In Japan, there is no clear judicial precedent or statu - tory provision nor guideline or rule regarding any change in directors’ duties when the company starts to be in financial distress. Thus, there is no rule that the directors’ duties shift to being owed towards cred - itors when the company is on the verge of insolvency, for example. Also, as noted in 5.1 The Different Types of Liquidation Procedure , the current law does not require a company or its directors/officers to file for an insolvency proceeding. 7.2 Personal Liability of Directors The directors of a company owe a fiduciary duty to the company. The standard of care is interpreted to be “the level of care that is normally expected to be taken by a prudent manager in that situation”. The level of care required may be increased if the director was appointed because of their special skills. Japan, too, incorporates the “business judgement rule” when assessing whether a director has satisfied their fiduci - ary duty. This rule is founded on the idea that direc -
6.2 Jurisdiction As criteria for Japanese insolvency proceedings, the following applies: • Corporate Reorganisation: Stock companies incor - porated under the Japanese Corporations Act and foreign companies with similar characteristics as Japanese stock companies that have their princi - pal business office (often construed as having the same meaning as COMI) are eligible debtors. • Civil Rehabilitation: Debtor companies that have their principal business office (often construed as having the same meaning as COMI) are eligible debtors. • Bankruptcy: The eligibility criteria are the same as those for civil rehabilitation. • Special Liquidation: Only Japanese stock compa - nies are eligible. 6.3 Applicable Law There is no statutory determination between restruc - turing and insolvency-related law, which means that debtor companies or their stakeholders are allowed to choose which regime to utilise as long as the debtor satisfies the relevant eligibility criteria. However, when a restructuring-type insolvency proceeding fails, for example, the proceeding would be converted into bankruptcy. 6.4 Recognition and Enforceability See 6.1 Sources of International Insolvency Law . 6.5 Co-Ordination in Cross-Border Cases There seems to be much interest in cross-border co- ordination on the part of Japanese courts. However, there have been no instances in which a court has entered into a protocol or similar arrangement with a foreign court. 6.6 Foreign Creditors Foreign creditors have the same status as Japanese creditors, respectively, with respect to bankruptcy, civil rehabilitation and corporate reorganisation, in general.
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