JAPAN Law and Practice Contributed by: Jiro Mikami, Ryo Okubo, Hiromi Hattori and Tomohiro Koyasu, Nagashima Ohno & Tsunematsu
However, since the creation of security still con- stitutes the borrower’s breach of the underlying contract, the lenders usually allow exclusion of the non-assignable receivables from the security package, imposing an obligation to use com- mercially reasonable efforts to amend the under- lying contract to remove the non-assignment covenant on the borrower. There are three ways to perfect a pledge or a security interest by way of assignment against third parties (other than third-party debtors): • send a notice with notarisation ( kakutei hiduke ) to the third-party debtor; • obtain consent with notarisation from the third-party debtor; or • register the pledge or assignment with the competent legal affairs bureau (under the Act on Special Provisions, etc of the Civil Code Concerning the Perfection Requirements for the Assignment of Movables and Claims (Act No 104 of 1998) (the “Registration Act” )). There is no additional requirement for notice or consent to perfect either a pledge or a secu- rity interest by way of assignment against the third-party debtor (notarisation is therefore not required for this purpose). However, for regis- tration under the Registration Act, it is neces- sary to also deliver a certificate of registration to the third-party debtor in order to perfect the pledge or a security interest by way of assign- ment against the third-party debtor. If the third-party debtor is located in a foreign jurisdiction, it is recommended that perfection be made in both Japan and the foreign jurisdic- tion. This is because the local conflict of laws rules in the foreign country might require the security holder to comply with the perfection
process in the jurisdiction in order to enforce the security interest there. It is possible to create a security interest by way of assignment over future receivables. However, following a series of Supreme Court decisions since 1999, creating a security interest on future receivables by way of assignment is only valid if the scope of receivables to be assigned is clearly stated in the security agreement, by specifying, among other things: • the period during which the future receivables will arise; • the name of the creditor; • the name of the debtor; and • the transaction giving rise to the future receivables. In addition, although there is no specific Supreme Court decision ruling on this matter, it is widely believed that creating a pledge over future receivables is also possible. Intellectual Property Rights Intellectual property rights may be included in the security package by use of a pledge, or by creating a security interest by way of assign- ment. However, since the assignee of a security interest over intellectual property is exposed to the risk of infringement by the secured intellec- tual property, the lenders tend to avoid using the security interest by way of assignment. For trade marks and patents, the execution of a pledge or assignment agreement and the reg- istration of it is required in order to create and perfect the security interest. However, for copy- rights, only the execution of a pledge or assign- ment agreement is required to create the security interest and registration is required for perfection against third parties. A registration tax of 0.4%
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