Vol 7 (2010) - Issue 2

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Quasi-Governmental Special Purpose Vehicle to Restructure Ailing Business Corporations in Extraordinary Times: Proposal Based on Japan’s Experiences

This is an amended paper based on presentations made at the Extraordinary Restructuring Solutions For Extraordinary Times session of the Annual Conference of the International Insolvency Institute (III) held in New York on 19 June 2009, and the National Experiences With Out-of- Court Restructuring (OOCR) session of the 9th Forum on Asian Insolvency Reform (FAIR) 2009 held in Bangkok on 18 July 2009.

Introduction

The downturn of the real economy may bottom out in the near future, but its recovery may be 'L'-shaped rather than 'V'-shaped. Many business corporations may have to resolve excess capacity problems to match reduced consumer demands. Compared to declining gross sales, some parts of existing debts owed by many business corporations may become excessive. Without revitalising these business corporations by means of debt restructuring, another economic crisis may occur.

Insolvency law reforms and expedited practice in Japan

Significant changes in reorganisation occurred in Japan between the late 1990s and early 2000s. The Civil Rehabilitation Law was enacted in 1999 to replace the previous Composition Law of 1922. This was followed by a series of changes in bankruptcy related laws, such as the enactment of the new Law for Recognition and Assistance for Foreign Insolvency Proceedings adopting UNCITRAL Model Law in 2000; the enactment of the new Corporate Reorganisation Law (CRL) in 2002 replacing the previous CRL of 1952; the enactment of the new Bankruptcy Law (BL) in 2004 replacing the previous BL of 1922; and the enactment of the new Company Law which includes many new tools to facilitate reorganisation of healthy and distressed business corporations in 2005. The new Company Law also revised provisions regarding the Special Liquidation Proceeding. Chapter 4 of the Revised Act on Special Measures for Industrial Revitalisation (RASMIR) of 2007 enabled the establishment of the Business Reorganisation ADR mentioned below.
Along with the above legal reforms, Japanese courts have opened their gates to rehabilitation and reorganisation cases that are being handled more speedily. The handling of bankruptcy cases has also been speeded up. In civil rehabilitation cases in Tokyo, a plan will be generally confirmed by the court about six months after the filing of a petition to open the case. In corporate reorganisation cases, which are generally larger in size than civil rehabilitation cases, a plan will be generally confirmed within one year after commencement of the case.
In the past ten years, a lot of private equity funds to target distressed companies were created and advisory/ consulting/turnaround firms specialising in rehabilitating distressed businesses became widespread in Japan.

The Industrial Revitalisation Corporation of Japan (IRCJ)

The IRCJ was created in May 2003 by the Japanese Government to dispose of non- and poorly performing loans as well as to revitalise ailing companies with excessive debts to help overcome prolonged recession that lasted over ten years. The IRCJ rescued 41 enterprise groups consisting of nearly 200 companies by March 2005 and dissolved itself in March 2007, one year earlier than was scheduled.