JAPAN Law and Practice Contributed by: Akira Matsushita, Norihito Sato, Hideki Ben and Nobuhiko Suzuki, Mori Hamada
See 9.2 Asset Redistribution and Transfers for dis- tribution and transfer of assets upon termination of the JV. 9.2 Asset Redistribution and Transfers If a JV is terminated, the redistribution of assets among the parties will be determined in accordance with the parties agreement in the JV agreement. In the absence of such agreement, the assets will continue to be held by the JV company. If the JV company is liquidated, a liquidator appointed by a shareholders’ meeting will determine how the JV company’s assets will be distributed to its sharehold - ers if the JV agreement does not provide for the dis - tribution of assets upon liquidation. However, the JV partner that originally contributed those assets to the JV company would usually want a return of the assets. The JV partners may also wish to co-own the assets originating from the JV company itself, such as IP rights developed by the JV company. Therefore, the JV partners should clearly agree on the treatment and ownership of assets upon termination of a JV in the JV agreement to ensure that the assets will be treated and transferred as they desire. 9.3 Exit Strategy Under the CA, the AoI may require the approval of the company for share transfers, and practically most JV companies have that requirement in their AoI. In addi - tion, under the CA, a company buy-back of its shares requires that a resolution be passed at a shareholders’ meeting, and the amount of the buy-back must be within the amount of the company surplus. Parties often provide their exit strategies in the JV agreement. For example, the JV agreement may give a JV member put options should it wish to sell its JV shares to the other JV members. The actual JV exit methods vary depending on the circumstances, but the authors typically see the following exit methods: • sale of JV shares to other JV participants, the JV company or third parties; • listing on a stock market; and • dissolution.
Because of these regulations, listed companies now need to consider ESG strategies. Since the formation of JVs could provide a pathway for listed companies towards acquiring new technologies that could be of help in finding ESG solutions, ESG is now becoming one of the growing drivers in that regard when forming JVs. Since Japanese regulators have taken interna - tional discussions into account when implementing Japanese ESG regulations, international policies and scenarios may impact on Japanese ESG regulations in the future. 9. Exit Strategies and Termination 9.1 Termination of a JV Typical causes for the termination of a JV arrangement include: • material breach of the JV agreement by a JV part - ner; • insolvency of a JV partner; • change of control of a JV partner; • financial difficulties of the JV or the JV’s failure to reach certain milestones; and • a deadlock that cannot be resolved (see 6.4 Dead- locks ). Ideally, the parties should agree beforehand on the treatment of the JV company’s shares upon termina - tion of a JV, as well as on distribution and transfer of assets between the JV participants. In many cases, when a JV agreement is terminated, the terminating party may exercise either a call option to purchase the other JV partners’ shares in the JV company or a put option to sell the terminating party’s shares in the JV company. The JV agreement would typically provide for a put/ call price that is an increased/reduced percentage of the fair market value (eg, 120% or 80% of the fair mar - ket value) if the termination is due to the fault of the other party, and simply the fair market value in other cases. The JV agreement may also give the terminat - ing party the right to call for the dissolution of the JV company.
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