Insolvency 2025

JAPAN Trends and Developments Contributed by: Hajime Ueno, Masaru Shibahara and Takahiro Kato, Nishimura & Asahi (Gaikokuho Kyodo Jigyo)

The sole threshold requirement is the existence of a risk that the debtor may be unable to pay its current debts without hindering the continuation of its busi - ness. This threshold is lower than that required for court-supervised restructuring proceedings. The Minister of Economy, Trade and Industry desig - nates a neutral third-party organisation to supervise the procedures. This Designated Organisation must meet certain requirements, such as having the capac - ity to appoint appropriate professionals, who possess expert knowledge and practical experience in busi - ness recovery, to handle each case. The procedure applies only to financial debts, exclud - ing trade claims, labour claims, and other non-finan - cial obligations, and the scope of eligible parties is also defined. However, it is still unclear whether guar - antee claims and corporate bonds can also be sub - ject to this new procedure. Furthermore, transferees of financial debts could be involved in this procedure, but what kind of limitations will be set regarding the scope of such transferees is still up in the air. These details are to be determined by an order of the Min - istry of Economy, Trade and Industry, which has not been published at the time of writing. In addition, the claims that are subject to modifica - tions of rights (eg, debt haircuts, rescheduling) are limited to unsecured claims. Confirmation and temporary stay The debtor submits relevant documents, such as writ - ten materials outlining the proposed changes to the financial claims held by financial institutions and the direction of business recovery, and a list of the rel - evant claims. Based on these documents, the Designated Organisa - tion confirms whether the requirements are met, for example, the need for debt adjustment (the enterprise being at risk of falling into financial distress), the likeli - hood of a resolution being approved at the relevant creditors’ meeting, and the likelihood of conformity with the general interests of the relevant creditors (whether the liquidation value test is satisfied).

Once these issues are confirmed, the procedure offi - cially commences, and the Designated Organisation sends all relevant creditors a request for a voluntary stay, asking them to refrain from exercising their rights temporarily. However, it is possible that finan - cial institutions may commence individual enforce - ment actions, or the realisation of security interests⁠, as the creditors have no obligation to comply with the request. If that occurs, a court may⁠ issue a bind - ing stay order, temporarily suspending such actions, under certain conditions⁠. Plan submission and review Within six months (with a possible extension to a total of twelve months) after the confirmation of the Desig - nated Organisation⁠, the debtor must submit an early business recovery plan containing projections of the enterprise’s assets, liabilities, revenues, expenditures, and other relevant information, along with a written proposal detailing the terms of the proposed modifi - cations of creditors’ rights⁠. The debtor also needs to submit a property valuation report for its assets and liabilities. The Designated Organisation reviews the early busi - ness recovery plan, the written proposal of modifica - tions to creditors’ rights, and the property valuation report, and reports the results to the creditors before the creditors’ meeting. Resolution at the creditors’ meeting At the creditors’ meeting, after the debtor provides relevant information and the creditors are given an opportunity to express their opinions, the proposal to modify the unsecured portion of the relevant claims is put to a vote by means of a resolution that must be approved by the consent of creditors holding at least three-quarters of the total voting rights, as calculated based on the unsecured portions of the claims. If a single creditor holds three-quarters or more of the vot - ing rights, the consent of a majority in number of the voting creditors is also required. If all voting creditors unanimously approve the pro - posal at the creditors⁠’ meeting⁠, the modification of claims becomes effective immediately, without the need for court approval.

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