JAPAN Law and Practice Contributed by: Jiro Mikami, Ryo Okubo, Hiromi Hattori and Tomohiro Koyasu, Nagashima Ohno & Tsunematsu
The type of security interest used depends on the type of assets. As another classification, if the secured loan is a revolving facility, revolv- ing security interests (such as revolving pledges ( ne-shichi-ken )) are used. If the secured loan is a non-revolving facility such as a term facility, ordinary (non-revolving) security interests (such as ordinary pledges ( futsu-shichi-ken )) are used. Shares The lenders typically create a pledge over shares. Firstly, when the issuer of the shares is not a listed company and the articles of incorporation of the issuing company provide that share certifi- cates are to be issued, the execution of a pledge agreement and delivery of the share certificates to the pledgee are required in order to create the pledge. To perfect the pledge against the issuing company and third parties, the pledgee is required to continuously possess the share certificates. The security agent usually receives delivery of the share certificates and keeps them as proxy for all the pledgees. Secondly, when the issuer of the shares is not a listed company and the articles of incorpora- tion of the issuing company do not provide that share certificates are to be issued, the execution of a pledge agreement is sufficient to create the pledge. It must be recorded in the share ledger in order for it to be perfected against the issuing company and third parties. Thirdly, when the issuer of the shares is a listed company, the pledge becomes effective when the pledgee has the increase in the number pertaining to the pledge described or recorded in the pledge column of the pledgee’s account through application for the book-entry transfer (the Act on Book-Entry Transfer of Corporate Bonds and Shares (Act No 75 of 2001)).
A pledge of shares of partially owned subsidi- aries, such as joint ventures, may require the other shareholders’ consent, as this is typically required by the shareholders’ agreement. Bank Accounts While a credit party can validly create a pledge over its receivable with respect to a fixed deposit account, it is unclear under Japanese law wheth- er a credit party can validly create a pledge over its receivable with respect to an ordinary savings account because the deposits vary over time through withdrawals, transfers and additional deposits. Receivables Receivables (such as trade receivables and bank account receivables) are included in the security package by the use of a pledge or by creating a security interest by way of assignment. The execution of a security agreement is suffi- cient to create either a pledge or a security inter- est by way of assignment. Before the amend- ments to the Civil Code (Act No 89 of 1896) that came into force on 1 April 2020, if the underlying contract prohibits the assignment of the receiva- bles or the creation of a security interest over the receivables (non-assignable receivables), it was necessary to obtain the third-party debtor’s consent in order to legally and validly create a pledge or a security interest by way of assign- ment. The lenders therefore usually excluded these non-assignable receivables from the secu- rity package. Currently, after the enforcement of the amend- ments to the Civil Code, lenders are able to legally and validly create a security interest over the non-assignable receivables without obtain- ing the third-party debtor’s consent.
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