JAPAN Law and Practice Contributed by: Hiroki Aoyama, Yuki Matsuda and Shuhei Takaishi, Mori Hamada
of funding as much as possible. Lenders and bor- rowers sometimes agree on so-called “certain funds” terms, although the details may differ on a case-by- case basis. One of the most typical categories of transaction where these types of terms are negoti- ated is the leveraged public acquisition deal, although such negotiations also occur in the course of private acquisition finance transactions. Under the Japanese TOB regulation, the offeror is required to disclose documentary evidence of its financial ability to fund the tender offer through the online disclosure system of the FSA, the Electronic Disclosure for Investors’ NETwork (EDINET). There- fore, commitment letters in precedent cases are pub- licly available on EDINET. 3.9 Recent Legal and Commercial Developments Based on the discussions of the working group estab- lished by the FSA, a bill on a new legal framework for blanket collateral ( kigyokachi tampo ken ) was passed by the Diet on 7 June 2024. The legislation aims to promote cash flow-focused lending practices that do not rely on real estate collateral or guarantees from individual members of management by enabling lend- ers to take security over whole businesses (including intangible assets). A summary of the legislation is as follows: • it introduces a legal framework for blanket collat- eral through which companies (particularly start- ups) with few tangible assets, such as real estate properties, will be able to procure funds by taking advantage of their whole business value (includ- ing goodwill and future cash flows to be generated from business activities); and • guarantees provided by individual members of management are prohibited when new blanket collateral is utilised, except for window-dressing by the business owner; and holders of blanket collat- eral will be limited to trust companies that are sub- ject to a newly introduced licensing examination so that blanket collateral is properly handled. At the time of writing, the legislation will take effect on 25 May 2026.
In addition, a new bill was passed by the Diet on 30 May 2025 which clearly stipulates the method of cre- ating and perfecting, as well as exercising, security assignments over movable properties and receiva- bles, which is not explicitly provided in the current
Civil Code of Japan. 3.10 Usury Laws
There are usury laws in Japan. Although multiple Acts address this issue in a complex manner, the most notable law is that the maximum interest rate for loan transactions is 15% where the amount loaned is JPY1 million or more. The usury laws provide that fees or other monies paid to a lender in respect of a loan are deemed to be inter- est for the purpose of the interest-rate cap. In this con- text, the scope of “deemed interest” often becomes a practical issue. Firstly, under the Commitment Line Act, commitment fees are statutorily exempted from the scope of deemed interest, provided that the bor- rower falls within the prescribed categories, such as a stock corporation with share capital of more than JPY300 million. Secondly, whether other fees such as the arrangement and agent fees fall within the scope of deemed interest has, at times, been a critical issue. The practitioners’ approach to this issue is that, put simply, if the independent and substantial services (such as arrangement services) are provided and the amount of fees are within a reasonable range for such services, the fees should not fall within the scope of deemed interest. 3.11 Disclosure Requirements There are no general rules regulating disclosures of financial contracts. However, financial covenants associated with loans or bonds need to be disclosed in the borrower’s or issuer’s annual securities report if such disclosure is necessary to ensure that inves- tors can make informed decisions based on the com- pany’s financial condition, operating results, and cash flow status. In addition, a framework to facilitate disclosures of financial covenants by companies that file an annual securities report, which had been proposed by the working group established by the FSA, was enacted into law on 1 April 2024. Under this law, if a reporting
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