JAPAN Law and Practice Contributed by: Jiro Mikami, Ryo Okubo, Hiromi Hattori and Tomohiro Koyasu, Nagashima Ohno & Tsunematsu
7. Lender Liability 7.1 Equitable Subordination Rules In Japanese terminology, lenders’ liability in the broad sense means any liability of a financial institution in connection with its lending in the process of negotiation, closing, administration and collection. The lenders’ liability in the narrow sense means the liability of a financial institution due to its excessive control over the borrower. There have been many court precedents about the former and a few on the latter, but these are general obligations of the lenders and no spe- cific consideration of lenders’ liability in the con- text of acquisition finance have yet been actively addressed in Japan. The application of equitable subordination rules to acquisition financiers has also not been actively discussed in Japan. 7.2 Claw-Back Risk Unlike in the US, the claw back risk for lenders under insolvency procedures in cases where a target of a certain acquisition completed with the proceeds of leveraged buyout financing goes into bankruptcy due to the heavy debt under the leveraged buyout has not been actively dis- cussed in Japan. The types of documents stamps must be affixed to and the amount of stamp tax for each docu- ment are specified in the Stamp Tax Act (Act No 23 of 1967). In a term loan agreement, a stamp (the amount of which depends on the amount of the loan) is required on each original copy (for example, if the amount of the loan is JPY5 billion or more, a stamp of JPY600,000 is required). In the case of a revolving loan agreement, a stamp of JPY200 is required on each original copy. 8. Tax Issues 8.1 Stamp Taxes
The security agreements and the intercredi- tor agreement typically set out the agreements among the parties when they proceed with the private disposition of the security assets, such as general guidelines on the sales price, how to proceed with the auction process and the repay- ment waterfall. Having said that, it is still very rare for securities created for acquisition financ- ing to actually be enforced in Japan.
6. Guarantees 6.1 Types of Guarantees
Joint and several guarantees are typically pro- vided by each credit party other than the bor- rower because they extinguish any structural subordination and allow the loans to be recov- ered from any credit party by way of set-off. 6.2 Restrictions Providing a guarantee is also subject to the gen- eral fiduciary duty directors have. In principle, providing guarantees for the benefit of directly or indirectly wholly-owned or wholly-owning companies does not raise a fiduciary duty issue because the interests of the guarantee receiver and the guarantor are deemed to be aligned. However, providing a guarantee for the ben- efit of another group company without receiv- ing corresponding benefits (such as guarantee fees or financing through an intercompany loan) or obtaining consent from all the shareholders raises a fiduciary duty issue. Other than the general fiduciary duty of direc- tors, there are no restrictions on upstream guar- antees or financial assistance as seen in other jurisdictions. 6.3 Requirement for Guarantee Fees See 6.2 Restrictions .
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