JAPAN Law and Practice Contributed by: Hajime Ueno, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)
against the concept of the proceedings (the “right of avoidance”). The following explanation is based on an example of bankruptcy that is common in other proceedings. Avoidance of Acts Prejudicial to Creditors The acts subject to this right of avoidance are those that reduce the liable assets. To be avoided, the act must have been carried out intentionally by a party to the transaction, or the act must have taken place after the debtor’s suspension of payments, etc. The main examples of such acts are as follows: • selling real estate at a very low price; • guaranteeing the debt of someone without any guarantee charge; and • gifts, waivers of claims, etc, made by the debtor during the six months prior to the debtor’s suspen - sion of payments or after such suspension. Avoidance of an Act of Disposing of the Debtor’s Property With Reasonable Value From the Counterparty Even if the debtor received reasonable consideration from the buyer of the property, the disposition is sub - ject to the right of avoidance if the following conditions are met: • The disposition creates an actual threat that the debtor will conceal the property more easily. • The debtor had the intention to conceal or dispose of the consideration at the time of the disposition.
• The buyer knew the debtor’s intention at the time of the disposition. Avoidance of Provision of Security, etc, to Specific Creditors The acts subject to this right of avoidance are granting a security interest or repayment of an existing debt made with respect to an existing debt after insolvency or a petition to commence bankruptcy. The main examples of these acts are as follows: • After the petition to commence bankruptcy, upon the request of a creditor knowing the petition, the debtor grants the creditor a security interest on the debtor’s property to secure the creditor’s claim. • After the debtor becomes insolvent, a creditor knowing the debtor’s insolvency demands that the debtor repay the creditor’s claim and the debtor does so. Look-Back Period As a general rule, the right of avoidance is exercisable for two years after the insolvency proceedings com - mence or 20 years after the act to be avoided was car - ried out. However, the right of avoidance requiring that the act was carried out after payments were suspend - ed or while knowing that payments were suspended is exercisable only when the act was conducted within one year before the petition for commencement. 8.2 Claims to Set Aside or Annul a Transaction or a Transfer See 8.1 Circumstances for Setting Aside a Transac- tion or Transfer .
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