JAPAN Law and Practice Contributed by: Hiroki Aoyama, Yuki Matsuda and Shuhei Takaishi, Mori Hamada
jurisdiction is determined in accordance with these conventions, to the extent they are applicable. Oth- erwise, the recognition of a foreign arbitral award is determined based on the same requirements as apply to a domestic arbitral award under the Arbitration Act, which are as follows: • that the award must be final and conclusive; • that the parties must have received due service of process and been afforded the opportunity to defend themselves; • that the award must have been given in accord- ance with the law of the location of the arbitration; and • that the contents of the arbitral award must not be contrary to the public order and good morals of Japan. 6.4 A Foreign Lender’s Ability to Enforce Its Rights Regarding the enforcement of share pledges, foreign lenders are restricted from acquiring pledged shares over companies that conduct certain limited catego- ries of business related to national security, including telecommunications, broadcasting and aviation. There are three major statutory insolvency proceed- ings: bankruptcy ( hasan ), civil rehabilitation ( minji saisei ) and corporate reorganisation ( kaisha kousei ). Bankruptcy results in the liquidation of the borrower’s business, while the other two proceedings allow the debtor’s business to continue once substantial chang- es have been made to its assets, liabilities and equity, pursuant to a rehabilitation or reorganisation plan. Statutory Insolvency Proceedings 7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes Under statutory insolvency proceedings, creditors of unsecured claims are generally prohibited from enforc- ing their loans once judicial insolvency proceedings have commenced (and, in most cases, immediately after the insolvency application has been filed with the court) with respect to the borrower. Unsecured creditors must instead recover their claims in accord- ance with the insolvency procedure, in terms of both
the timing and the amount of the recovery. The same applies to the enforcement of a guarantee in the insol- vency of the guarantor. The general rules applicable to secured creditors depend on which of the three insolvency proceed- ings is chosen. Corporate Reorganisation Proceedings Under corporate reorganisation proceedings, secured creditors are prohibited from enforcing their security interests outside the reorganisation proceedings, and can receive repayment only in accordance with the reorganisation plan approved in the reorganisa- tion proceedings, in terms of both the timing and the amount of the recovery. More than two thirds of the voting rights held by all secured creditors need to be voted in favour of a reorganisation plan if the plan provides for a rescheduling of the secured claims, and more than three quarters of the voting rights are needed if the plan provides for other restrictions on the security interests (for example, a haircut of the secured portion of the claims held by the secured creditors). The Corporate Reorganisation Act recognises the concept of a “cram-down”, whereby the court may approve a plan without the consent of certain classes of creditors; for example, the secured class of credi- tors (Article 200-1). However, in order for the court to approve a plan pursuant to a cram-down provision, the court is required to grant fair protection to the objecting class of creditors, for example by distribut- ing the fair value of the security interest to the secured claim holders. Bankruptcy and Civil Rehabilitation Under bankruptcy proceedings and civil rehabilitation proceedings, the enforcement of a security interest is, in principle, not affected by the insolvency of the bor- rower. However, there are notable exceptions to this general rule with regard to civil rehabilitation. First, the court may issue an injunctive order to stop the enforcement of a security interest by a creditor, to the extent that the injunctive relief would be in the general interest of creditors and the relevant secured credi- tor would not suffer unjustifiable damage as a result. Second, the court may approve the extinguishment of
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