JAPAN Law and Practice Contributed by: Hiroki Aoyama, Yuki Matsuda and Shuhei Takaishi, Mori Hamada
Movable Properties Pledges and security assignments (ie, security by way of assignment or assignment for the purpose of secu- rity) are the most typical forms of security for movable properties. The secured obligation can be specified or designated as a certain group of unspecified obliga- tions. To effectuate a pledge over movable properties, actual delivery of the subject properties is required. For this reason, security assignment is more often adopted, since actual delivery is not required. To perfect a security assignment of movable proper- ties, actual delivery or constructive delivery (such as the occupant’s manifestation of its intent to occupy the subject assets on behalf of the lenders) of the tar- get properties is required. Registration of the transfer will also perfect the security assignment. Movable properties can be collateralised as individual properties or as a pool of properties. The pool needs to be sufficiently identified by specifying the type of asset, the location and other necessary criteria. This method enables the lenders to capture after-acquired movable properties as security. Receivables Pledges and security assignments are the most typi- cal forms of security for receivables. The secured obli- gation can be specified or designated as a certain group of unspecified obligations. Lenders can perfect the pledge or security assign- ment by giving notice to, or obtaining consent from, the obligor in written form, together with a notarised date certificate. Registration of the pledge or transfer will also perfect the pledge or security assignment. Future receivables can be subject to the pledge or security assignment if the target receivables are suf- ficiently identified and follow the other requirements. Receivables may be collateralised without having to obtain the obligor’s consent even if the underly- ing contract has a transfer restriction clause. How- ever, if receivables are collateralised in breach of a contractual restriction, the obligor may refuse to pay
the secured party upon the enforcement of the secu- rity if the secured party was aware, or due to gross negligence unaware, of the restriction at the time of collateralisation. One exception to the foregoing gen- eral rule relates to bank deposits, which cannot be collateralised without the bank’s consent. Banks are generally reluctant to give consent unless they are a secured party. Shares A pledge is the most typical form of security for shares. The secured obligation can be specified or designated as a certain group of unspecified obligations. Even if the articles of association of the issuer contain transfer restrictions, a share pledge can be effectu- ated by an agreement between the pledgor and the pledgee. However, lenders sometimes request that the target company amend its articles of association so as not to hinder the enforcement of the pledge, or otherwise to ensure the smooth enforcement of the share pledge. The perfection method differs depending on the type of shares. If the shares are dematerialised, the pledge is perfected by means of electronic book-entry. If not, the share pledge is perfected by delivery of the share certificate representing the pledged shares. If the shares are not dematerialised and the issuing com- pany does not issue share certificates pursuant to its articles of association, the share pledge is perfected by requesting that the issuing company record the pledge on its shareholder ledger. Others Other types of assets – such as debt securities, IP and trust beneficial interests – are taken as security and perfected in accordance with the steps applicable to each type of asset. 5.2 Floating Charges and/or Similar Security Interests The concept of a universal security interest (where- by the lender is granted security interest over all the debtor’s property, whether present or after-acquired, to secure its secured obligation) is not available to secure loan obligations under Japanese law. There- fore, lenders need to follow the creation and per-
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