JAPAN Law and Practice Contributed by: Hajime Tanahashi, Takayuki Kihira, Kenichi Sekiguchi and Akira Matsushita, Mori Hamada
tion proposals, and provide that they should act in a manner that allows them to be responsible for explaining (afterward) the rationale behind their reactions to acquisition proposals and their decisions on whether to accept acquisition pro - posals.
a suit against directors or corporate auditors of a target company for recovery of monetary dam - ages suffered as a result of the violation of their duties of care and loyalty. 10.3 “Broken-Deal” Disputes In early 2020, some pending Japanese M&A transactions that were negotiated before the COVID-19 crisis were suspended or cancelled as a consequence of the pandemic. However, there has been no reported important court deci - sion with respect to M&A transactions dealing with the triggering of MAC clauses, or breaches of pre-closing covenants or representations and warranties, as a result of the pandemic. Although public shareholders have not histori - cally had much influence on the management of companies in Japan because of cross-share - holdings, according to a recent survey, Japan is one of the countries most targeted by public campaigns conducted by shareholder activists. Since the introduction of Japan’s Corporate Gov - ernance Code in 2015 and Stewardship Code in 2014, there has been a significant change in the environment surrounding the corporate gov - ernance of Japanese listed companies and the mindset of their management. 11.2 Aims of Activists 11. Activism 11.1 Shareholder Activism After the issuance in 2020 of the Practical Guide - lines for Business Transformation by METI, which discusses issues concerning business portfolios and business transformations of Japanese com - panies, there was a gradual increase in the num - ber of demands by activists against Japanese listed companies for divestitures or spin-offs of non-core or unprofitable businesses.
10. Litigation 10.1 Frequency of Litigation
In general, it is not very common in Japan for shareholders or other stakeholders in a compa - ny to bring litigation against the company or its directors in connection with M&A transactions. Under Japanese law, it is not easy for stake - holders to enjoin in advance the consummation of any type of M&A transaction because the grounds for an injunction are generally limited to a violation of law or the company’s articles of incorporation. The general view is that a violation by directors of their duties of care and loyalty is not deemed a violation of law. The exception is that shareholders may seek injunctive relief against: the issuance of stock or stock options by the company pursuant to the Companies Act based on certain grounds, including that the issuance is unjust; and a short- form merger or exercise of the Squeeze-Out Right, based on the grounds that the consid - eration is grossly improper. 10.2 Stage of Deal Shareholders are more likely to bring legal action in connection with M&A transactions involving conflicts of interest, such as MBOs or squeeze- out transactions conducted by a controlling shareholder, after the transactions are complet - ed. The most common litigation in Japan is liti - gation with respect to appraisal rights of share - holders. Moreover, shareholders sometimes file
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