JAPAN Law and Practice Contributed by: Hiroshi Mitoma, Tomohiko Iwasaki and Kosuke Hamaguchi, Nagashima Ohno & Tsunematsu
duty to supervise other directors’ execution of the company’s operation. In connection with the decision on a company’s operation, the business judgement rule applies, whereby directors are given broad discretion in making business decisions and are not to be held liable for those decisions unless the busi - ness decision or the process thereof is con - strued as significantly unreasonable. If a director intends to carry out any transaction: • with the company; • that competes with the business of the com - pany; or • that results in a conflict of interest between the director and the company, then the director is required to disclose the material facts relating to the transaction to the board of directors and obtain its approval. 4.7 Responsibility/Accountability of Directors In general, directors owe their duties to the com - pany. However, if a director breaches its fiduci - ary duty or any other duties, it may be held liable not only to the company but also to any third party that has suffered damage arising from the breach. 4.8 Consequences and Enforcement of Breach of Directors’ Duties Injunctive Relief If a director engages, or is likely to engage, in an act in violation of law or the articles of incorpora - tion (such acts include breach of a fiduciary duty) and this act is likely to cause substantial damage to the company, a shareholder holding shares in the company for six consecutive months or longer (or a shorter period if so provided in the
articles of incorporation) may seek injunctive relief. In the case of a closely held company, the restriction on the shareholding period does not apply. In the case of a company with statutory auditors, an audit and supervisory committee or nominating and other committees, injunctive relief is granted only if the company is likely to suffer irreparable damage because statutory auditors or the relevant committee members are expected to audit and supervise the directors. Compensation for Breaches/Third-Party Claims If a director or a statutory auditor breaches their duties, the company may seek compensation for the damage caused by the breach. In addition, a shareholder may also file a shareholder deriva - tive action on behalf of the company if the share - holder requests that the company file a lawsuit against a breaching director or statutory auditor but the company does not do so within 60 days of such a request. Moreover, if a third party suf - fers damage arising from the performance of the duties by a director or a statutory auditor who had knowledge that their conduct was inappro - priate or was grossly negligent, then the third party may seek recovery of the damage from the director or statutory auditor. Even if a director or a statutory auditor fails to perform their duties, their liability to a company arising from such failure may be discharged or limited through: • the consent of all shareholders; • a resolution of a shareholder meeting; or • a resolution of a board of directors (or, in the case of a company without a board of direc - tors, consent of a majority of two or more directors) pursuant to the articles of incorpo - ration.
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