JAPAN Law and Practice Contributed by: Eri Hirata, Takunori Kono, Naoki Matsumoto and Ikki Kawasaki, Nishimura & Asahi
light of the intent and purpose of the Cropland Act, which expressly prohibits trusts of agricultural land. Agribusiness funds may include funds that use anony- mous partnership investments (“ Tokumei Kumiai – TK funds”) and funds that use LPS structures based on the Law on Investment Limited Partnerships (“LPS funds”), described as follows. However, at this time, these types of funds have been formed in only a lim- ited number of cases. TK Funds Since anonymous partnership investment does not involve the acquisition of shares in a Corporation Qualified to Own Cropland, when structuring a TK fund, investments can be made without considering the legal requirements to be a Corporation Qualified to Own Cropland. However, the extent to which being unable to be proactively involved in the operation of a business under silent partnership agreements will have a major practical impact on investments in agri- business is unknown and may be an issue. LPS Funds When an LPS fund acquires shares in a Corporation Qualified to Own Cropland, it needs to consider the requirements of the Cropland Law. However, com- pared with TK funds, LPS funds have the advantage of being able to use the Investment Facilitation Act fund described in 2.2 Agriculture-Sector Finance . 5.5 Collateral Structures and Guarantee Models Mortgages are often placed on real estate, includ- ing on agricultural land that engages in agribusiness. If the real estate secured is agricultural land, mort- gages ( teitouken ) and assignment security interests ( joutotanpoken ) may be established. The establish- ment of the mortgage itself does not require permis- sion under Article 3 as mentioned in 2.1 Agriculture- Sector Policies and Planning Instruments . However, if the mortgage is exercised and the ownership of the agricultural land is transferred to the mortgagee or a third party, Article 3 permission is required, and if a corporation intends to acquire agricultural land, it is also necessary to satisfy the requirements to qualify as a Corporation Qualified to Own Cropland.
If an assignment security interest is established on agricultural land, it is construed that the ownership is transferred at the time of establishment of the assign- ment security interest; therefore, permission under Article 3 is also required at the time of establishment of the mortgage, and if the assignee is a company, it needs to be a Corporation Qualified to Own Crop- land. In addition, pledges ( shichiken ) are created when security is created for the leasehold on agricultural land, but the need for the approval of the Agricultural Committee at the time of establishment is not clear in terms of laws, regulations and practices. In addition to agricultural land, security interests in agricultural equipment and machinery, security inter- ests in aggregate chattel mortgages on agricultural products, and security interests in aggregate receiva- bles for agricultural products are also used. 6. Legal Advisory and Market Practice 6.1 Role of Legal Advisers in Transaction Structuring Since the Cropland Act places constraints on the establishment of corporations to engage in agri- business and the acquisition of agricultural land, it is important to consult a legal adviser to ensure an accurate understanding and examination of the appli- cable constraints. In addition, because it is possible to use a variety of systems based on various laws when investing in and financing agribusiness, it is expected that legal advisers will be involved in examining the financing options and decisions. The involvement of legal advisers also makes it possible to construct an appropriate amount of risk and structure for the preparation of contracts, and the involvement of legal advisers may be considered important for large-scale financing. 6.2 Legal Opinions and Market Acceptance Currently, there is little demand for the issuance of legal opinions in agribusiness in Japan. Neverthe- less, in the agribusiness field, there have been recent attempts to implement structured financing, and there may be cases in which the issuance of legal opinions is required to ensure the legality and effectiveness of
42 A GRICULTURA L LAW 20 26
CHAMBERS.COM
Powered by FlippingBook