JAPAN Law and Practice Contributed by: Jiro Mikami, Ryo Okubo, Hiromi Hattori and Tomohiro Koyasu, Nagashima Ohno & Tsunematsu
10. Jurisdiction-Specific Features 10.1 Other Acquisition Finance Issues Unlike in the US or Europe, the number of play- ers in the leveraged buyout loan market in Japan is still limited and the secondary market for leveraged buyout loans is not yet mature. For example, hedge funds that invest primarily in distressed debt are not active in Japan. As a result, an exit by assigning the loan receivables in the event of the borrower’s financial difficulties is limited for leveraged buyout lenders in Japan. Lenders therefore typically have to grant the borrower a waiver for an event of default in exchange for requiring additional capital injec- tions from the sponsor or adding or tightening the borrower’s covenants. In this context, lever- aged buyout lenders in Japan tend to broadly scrutinise the borrower’s business, assets and governance and be very cautious in their initial lending decisions.
by minority shareholders. While there are no reli- able court precedents in this respect, the general understanding is that a squeeze-out transaction can be blocked if the relevant shareholders’ resolution was made as a result of an abuse of rights of the majority shareholders, thereby ren- dering the resolution extraordinarily unfair. The most important factor in measuring the extraor- dinary unfairness is the fairness of the purchase price offered to the minority shareholders. A high holding ratio of the majority shareholders after the tender offer will also be a significant factor. Minority shareholders also have appraisal rights under the Companies Act (Act No 86 of 2005) and exercising these rights is the most prac- tical recourse for minority shareholders who are not satisfied with the purchase price. With an appraisal right, minority shareholders may require the target to purchase their shares and a fair purchase price will be determined by the courts if no agreement is reached between the minority shareholders and the target. In some lawsuits, the courts have decided in favour of minority shareholders. The rules are gradually being established but how the courts will decide future cases is not yet fully predictable due to a lack of abundant precedents.
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