Enter to open, tab to navigate, enter to select
PLC Global Finance update for October 2010: Japan
Practical Law UK Articles 7-503-6811 (Approx. 3 pages)
PLC Global Finance update for October 2010: Japan
by Atsumi & Partners
| Published on 29 Oct 2010 • Japan |
The Japan update for October 2010 for the PLC Global Finance multi-jurisdictional monthly e-mail.
Trade finance
An outline of regulations regarding assignment of claims in Japan
In recent months, Japan has seen an increase in factoring and non-performing loan business. One key aspect of such businesses is the ability to assign claims. This article covers some of the more common questions that market participants have in relation to such assignments.
1. Non-assignment clause
Can a claim be assigned in Japan, even if the contract giving rise to the claim between an obligor and an assignor contains a non-assignment clause?
Without the consent of the obligor, such an assignment is invalid under the Civil Law in Japan.
2. Perfection of the assignment
What are the requirements for perfection of the assignment of a claim?
There are two methods for perfection in Japan. However an assignor that is not a company incorporated in Japan cannot use the second method. The two methods are as follows:
- Method 1: Perfection under the Civil Law.
If the assignor wishes to perfect the assignment against both the obligor and third parties, it is necessary that the assignor provide the relevant obligor with notice of the assignment or obtain the obligor's consent to the assignment. In each case, the relevant notice/consent is required to be officially date-stamped by a notary public (kakutei hizuke) under the Civil Law. The cost of the date stamp is JPY700 a claim, making this a very expensive method if a bulk of claims are being assigned.
- Method 2: Perfection under the Perfection Law (Law 104 of 1998)
If an assignor is a company incorporated in Japan, it is possible to perfect against third parties by registering the claim (without any need for notice to or consent from the obligor) under the Perfection Law. In addition, if the assignor also wishes to perfect the assignment against the obligor, it is necessary that the assignor or the assignee provide the obligor with notice of the assignment, or obtain the obligor's consent to the assignment in accordance with the procedures specified in the Perfection Law. However, the notice or the consent is not required to be officially date-stamped by a notary public.
When the number of claims to be assigned is less than or equal to 5000, the cost of registration is JPY7,500. On the other hand, when the number of claims is more than 5000, the cost of registration is JPY15,000.
3. Licences and requirements for an assignee
Is an assignee required to be a bank or hold a licence to conduct factoring business in Japan?
If the assignment is made by way of true sale, the assignee does not need to be a bank or hold a licence. However, if the claim is likely to be disputed (for example; trade receivables that have remained unpaid for a long time) the assignee must hold a service licence under the Act on Special Measures concerning Business of Management and Collection of Claims.
4. Service licences for an assignor
Is an assignor required to hold a service licence to continue the servicing and collection of the claims factored to an assignee?
In general, an assignor is not required to obtain a service licence. However, if the claim is likely to cause disputes (for example; receivables that remain unpaid for a long time), the assignor is not allowed to continue the servicing and collection of the trade receivables without a service licence under the Act on Special Measures concerning Business of Management and Collection of Claims.
Restructuring and insolvency
Late claims not recognised under Corporate Rehabilitation Proceedings
On 4 June 2010, the Supreme Court affirmed that borrowers' claims against non-bank lenders (NBLs), (for example, for restitution of interest exceeding that, to be imposed by law, (kabarai)) will forfeit after a court has approved a rehabilitation plan pursuant to corporate rehabilitation proceedings if a proof of claim is not filed by the specified deadline. This applies even if:
- The NBL knows that the claim has not been filed.
- It is not practicable for the borrower to file its claim.
- The NBL took no steps to promote awareness of borrowers' need to file. Further, it is neither abuse of power nor breach of the good faith principle for the reorganisation trustee to forfeit the relevant claims.
The position under corporate rehabilitation proceedings can be contrasted with the position under civil rehabilitation proceedings in which a valid claim filed after the relevant deadline will not be forfeited if the NBL had actual knowledge of the claim or potential claim (Article 181 of the Civil Reorganisation Law). This difference arises from the fact that under civil reorganisation proceedings, the NBL must provide the court with a list of valid claims against it so it would be unfair to forfeit a claim that was known but omitted from such a list. A list is not required by the laws relating to corporate rehabilitation proceedings, as these are designed to create a quick and uniform procedure for dealing with claims against the insolvent company.
Recent pro-borrower revisions to the Money Lending Business Law and the Interest Rate Restriction Law in June 2010, make it likely that many NBLs in financial distress will use corporate rehabilitation proceedings as a means of fixing the amount of repayment claims.