JAPAN Law and Practice Contributed by: Hiroki Aoyama, Yuki Matsuda and Shuhei Takaishi, Mori Hamada
debt is conditional on the full payment of the senior debt. Senior lenders thus ensure that the subordinat- ed lender does not receive payment in priority to, or at the same ranking with, the senior lender. Relative subordination arrangement The essence of a relative subordination arrangement is an inter-creditor agreement between the senior and subordinated lenders. Typically, the subordinated lenders agree to hand over any payment they receive from the borrower to the senior lenders until the senior debt is paid in full, subject to certain exceptions. This type of arrangement is not intended to be effective vis-à-vis an insolvent borrower. 5.8 Priming Liens A statutory lien ( sakidori-tokken ) and retention rights ( ryuchi-ken ) may be created over real estate, movable property or other assets by operation of law in cer- tain situations. In project finance, for example, lend- ers usually request counterparties to the major project agreements to waive their retention rights ( ryuchi-ken ) or other statutory liens to ensure the lenders’ smooth exercise of step-in rights. 6. Enforcement 6.1 Enforcement of Collateral by Secured Lenders The central requirement for a lender to be able to enforce its security interest is that the secured obli- gation remains unpaid when due and payable. The lender typically declares an acceleration of the entire secured obligation pursuant to the loan agreement if it enforces its security interest before final maturity. Under standard security documentation, a lender may choose to enforce a security interest created in a com- mercial transaction by a judicial (in-court) procedure or private (out-of-court) process. Using judicial enforcement, a lender may enforce a mortgage over real estate by submitting the real estate registration certificate on which the mortgage is regis- tered. Typically, that real estate is then sold to a third party through a judicial auction process, and the sale
proceeds are applied to the repayment of the secured obligation. One of the problems with judicial enforcement is that the sale proceeds are likely to be substantially lower than would be realised through a private auction. A lender should therefore consider selling the subject property out of court, or acquiring the subject property itself at fair value and discharging the secured obliga- tion by the same amount. 6.2 Foreign Law and Jurisdiction Japanese courts generally recognise the validity of the choice of a foreign law as the governing law of a contract, but the governing law of security interests cannot be chosen by the parties. For example, secu- rity interests over real estate and movable properties are governed by the law of the location of the subject properties. Japanese courts also generally recognise the validity of a submission to a foreign jurisdiction. A waiver of sovereign immunity is upheld, provided that it is made in compliance with the requirements of the Act on the Civil Jurisdiction of Japan with respect to a Foreign State. 6.3 Foreign Court Judgments Japanese law adopts the principle of reciprocity regarding the recognition of foreign judgments. As such, Japanese courts will recognise final and con- clusive civil judgments rendered by a foreign court, provided that: • the foreign court is deemed to have valid jurisdic- tion over the matter, based on relevant laws or treaties; • the unsuccessful party received due service of process or appeared in court; • the content of the judgment and the related court proceedings are not contrary to the public order and good morals of Japan; and • there is reciprocal recognition between the relevant foreign jurisdiction and Japan. Japan is a party to the New York (1958) and Geneva (1927) Conventions, so the recognition of a foreign
265 CHAMBERS.COM
Powered by FlippingBook