JAPAN Law and Practice Contributed by: Hiroaki Takahashi, Kaoru Sato, Kenji Miyagawa and Koji Kawamura, Anderson Mori & Tomotsune
True Sales and Secured Loans In a true sale, the transferee is the owner of the asset; if the asset has been taken by the trustee ( kanzainin ) or is mingled with the other assets of the debtor, the transferee has a right of recovery ( torimodoshi-ken ) in an insolvency proceeding. In a secured loan, the transferee has a right to set aside ( betsujo-ken ) and receive payments outside the insolvency proceeding. However, the trustee can petition the court to extinguish the security right (subject to some provision for value to the security-holder) in reorganisation proceedings under the Corporate Reorganisa - tion Act, in rehabilitation proceedings under the Civil Rehabilitation Act and in the case of straight bankruptcy under the Bankruptcy Act. In addi - tion, where a reorganisation proceeding under the Corporate Reorganisation Act is made, no exercise of any security interest based on a reor - ganisation claim is allowed. The Issue of True Sale A true sale, in respect of an asset, is generally understood under Japanese law to mean that (i) the asset sold or entrusted by an originator is not regarded as collateral and (ii) the asset, upon being sold, ceases to be part of the origi - nator’s bankruptcy or insolvency estate. As the true-sale concept is not expressly codified under Japanese law, interpretation of the Civil Code and/or insolvency laws of Japan is necessary to determine whether an asset sale constitutes a true sale. For purposes of the interpretation, the overall structure of the transaction for the relevant asset sale will be examined, in addition to the relevant sale itself. Where necessary, legal opinions on whether an asset sale constitutes a true sale will also be obtained from external legal counsel of the transacting parties.
• normally, the collateral will be invested during the term of the CDO transaction and applied toward redemption of the notes; where any credit event occurs with respect to the refer - ence obligations, however, proceeds from the disposition of the collateral will be applied towards payments to the originator under the CDS. 6. Structurally Embedded Laws of General Application 6.1 Insolvency Laws Insolvency laws in Japan affect securitisation indirectly by causing the securitisation structure to be formed in a way that provides bankruptcy remoteness. A “true sale” of financial assets is a major requirement to ensure segregation from the financial risk of the originator and its affili - ates. In the case of a true sale, ownership of the assets is transferred to the transferee (special-purpose entity/vehicle – SPE/SPV). In the case of a secured loan, ownership of the assets remains with the originator. In a true sale, the asset is no longer related to the originator and is fully insulated from any origi - nator risks. The transferee effectively becomes the owner of the asset and holds all rights and obligations for the assets. In a secured loan, the transferee has a secured right only, and the underlying asset remains sub - ject to the financial risk of the originator (although the transferee has a secured right over the asset, there could be cases where the security right does not prevail).
204 CHAMBERS.COM
Powered by FlippingBook