JAPAN Law and Practice Contributed by: Hajime Ueno, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
tors should be afforded wide discretion regarding their business decisions, provided they are reasonably informed when making them and the process used to reach those decisions is reasonable. In Japan, directors’ fiduciary duties are interpreted to include a duty to supervise their fellow directors (including representative directors) and employees. As a result, if a director knowingly or negligently overlooks the misconduct of another director or an employee, and the company suffers damage from that misconduct, the director who overlooked the misconduct may be liable for the damage suffered by the company, together with the culprits (ie, the ones responsible for the misconduct). Furthermore, if the subject company is a “large cor - poration” (a company with paid-in capital of JPY500 million or more, or with liabilities of JPY20 billion or more, per its latest financial statement), the directors are obligated to establish or confirm internal control systems, and to monitor the effectiveness of such internal control system. Thus, if misconduct occurred without being detected or if financial distress arose from a failure of the system, then directors could be in breach of their duties. Creditors and shareholders may bring derivative law - suits against such directors and officers, but the dam - age will be compensated towards the company. However, directors are also liable to third parties (including shareholders) for damage suffered by them because of wilful misconduct or gross negligence in performing their duties as a director. Due to the directors’ duties being interpreted to include a duty to supervise their fellow directors and employees, liabil - ity may attach not only to the director directly respon - sible for the misconduct but also to any director who does not exercise a due level of care in supervising that director. In addition, there may be tort liabilities toward third parties under the Civil Code of Japan if directors commit wilful misconduct or negligence. Once insolvency proceedings commence, any action or lawsuit brought by a creditor against a director would be stayed and the trustee/supervisor will be
the one responsible for looking into the merits of the claim and pursuing directors’ liabilities. 7.3 Duties and Personal Liability of Officers See 7.2 Personal Liability of Directors . 7.4 Other Consequences for Directors and Officers A director may also be criminally liable for certain types of misconduct (eg, damaging the company to benefit the director or a third party, accepting a bribe or providing benefits for the exercise of shareholders’ rights). Also, if a director fails to comply with the duties required under the Corporations Act, including the obligation to keep the appropriate books and records, that director may be subject to administrative fines. Prior to the commencement of an insolvency proceed - ing against a debtor company, a creditor might be entitled to exercise a right to demand rescission of a fraudulent act of the debtor company under the Civil Code of Japan, assuming that certain requirements are satisfied. Such statutory rights granted to credi - tors are similar to the right of avoidance of the trustee/ supervisor as described below. The difference is, in the case of this pre-commencement statutory right under the Civil Code, under certain circumstances, the creditor who brought the claim may be entitled to receive the subject matter of the fraudulent act (eg, ownership of the property fraudulently transferred by the company) or the cash value of the subject matter. Post-Commencement Only the trustee (in bankruptcy and corporate reor - ganisation) or the supervisor (in civil rehabilitation) has the power to avoid acts taken by the debtor before these proceedings commence, which are deemed to impair equality among the creditors and/or which are 8. Setting Aside or Annulling a Transaction 8.1 Circumstances for Setting Aside a Transaction or Transfer Pre-Commencement
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