JAPAN Law and Practice Contributed by: Eri Hirata, Takunori Kono, Naoki Matsumoto and Ikki Kawasaki, Nishimura & Asahi
compared with laws and regulations in other sectors, there seems to have been less progress towards refin- ing agricultural laws and clarifying the applicability of the various provisions through public comment pro- cesses. Lack of Consistency With Laws and Regulations Determined by Other Regulatory Authorities Corporate legislation, financial legislation and other laws are revised frequently, in light of the social situa- tion and the current needs, but revision of agricultural regulations tends to be less frequent. For example, while the Companies Act permits methods of corpo- rate reorganisation such as mergers, company splits and share exchanges, agricultural regulations often do not include provisions for corporate splits and share exchanges. In the case of an M&A involving an enterprise that has obtained a licence based on agricultural regulations, it would be desirable for the licence to be transferred to a surviving and resulting entity after reorganisation. However, in principle, current agricultural regulations make it necessary to maintain the legal personality of the enterprise that obtained the licence, or the licence will be lost, which narrows the options for parties involved in transfers and reorganisations. 5. Financial Instruments and Financing Structures 5.1 Agriculture-Sector Credit Instruments JFC and JA Bank Loans Traditionally, the majority of funding for agribusiness has been provided through loans from Japan Agri- cultural Co-operatives (JA) and the JFC, and through diverse subsidies. However, new means of financing, including equity financing, are being sought. In 2023, JA Bank provided new loans to agricultural corporations totalling approximately JPY401.7 billion, mainly for short-term working capital and medium- term equipment investments, and the JFC provided new loans of approximately JPY389.1 billion, mainly for long-term and large-scale capital expenditures, to complement the loans provided by JA Bank. Loans by general financial institutions amounted to only about
JPY74.9 billion. Most of the loans to agribusinesses are therefore provided by JA Bank and the JFC, with banks and other general financial institutions playing only a limited role. In particular, Super L Loans, which are long-term, low-interest loans made by the JFC to Certified Farmers under the Agricultural Manage- ment Framework Reinforcement Act, have played a significant role in financing the agribusiness sector, with loan disbursements reaching JPY240.1 billion in 2023. See 2.1 Agriculture-Sector Policies and Plan- ning Instruments for information about the Certified Farmer system. The current status of loan transactions in the agri- business sector is dominated by corporate financing, based on the assets and creditworthiness of the entire entity. Structured financing, which is funded by focus- ing on the asset values or cash flows of specific assets or projects, is not an active source of agribusiness funding. Equity-Based Finance In agribusiness it is often difficult to raise funds through debt, especially in the early stages, because busi- ness scale and management organisation are often insufficient. In these cases, business management is carried out using equity funds. Equity-based financ- ing may include the issuance of shares in the case of stock companies, the issuance of partner interests in the case of membership companies, and anonymous partnership investments under the Commercial Code. When a Corporation Qualified to Own Cropland raises funds through the issuance of stock or membership, it is necessary to comply with the relevant requirements to maintain the entity’s status as a Corporation Quali- fied to Own Cropland, as described in 2.1 Agriculture- Sector Policies and Planning Instruments . When a Corporation Qualified to Own Cropland raises funds by issuing shares, if it is necessary for agricultural per- sons to hold a majority of the voting rights on the basis of the amount invested, it is necessary to provide an excessive amount of investment to shareholders who are individual farmers. However, corporate sharehold- ers will be restricted to investing only to the extent that the shareholders who are individual farmers can invest. In order to avoid this situation, the issuance of non-voting preferred stock enables a large amount
40 A GRICULTURA L LAW 20 26
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