Yuri Ide is a partner at Anderson Mōri & Tomotsune who has been principally involved in cross-border insolvency and restructuring cases, in which she represents debtors, investors and creditors in various industries including auto parts, aircraft and shipping. Her recent work includes the liquidation and restructuring of Japanese subsidiaries of international companies, in which she represented the debtors in out-of-court workouts, and she represented Japanese banks and international ad hoc bondholders’ groups in a cross-border restructuring. She also has extensive experience in M&A, litigation and crisis management matters, especially in an international context.
GTDT: In the past year, have you seen any developments or trends in the nature and volume of insolvency filings?
Yuri Ide: The number of insolvency filings in Japan has been decreasing over the past several years. Although the SME Finance Facilitation Act (which promoted banks taking a relaxed approach to companies having financial problems) was terminated in 2013, the Financial Services Authority has nevertheless continued to maintain the same policy to date to avoid bankruptcies of small to medium-sized companies (SMEs). Although a large number of SMEs are still suffering because of financial problems, these companies are being supported through out-of-court workouts, which usually just reschedule the repayment of loans to a later date but do not reduce the balance of the financial debt.
To support the rehabilitation of SMEs, the government also set up certain organisations to facilitate out-of-court workouts. For example, the government set up the SME Revitalisation Support Councils in each prefecture to work with local banks to rehabilitate SMEs. Sometimes the restructuring plan includes a haircut, but in most cases, the plan allows several years of rescheduling loans to give some time for companies to rehabilitate their business. There is another state-owned organisation, called REVIC (Regional Economy Vitalisation Corporation of Japan), which assists SMEs in stabilising their financial situation. In addition to facilitating the out-of-court workout discussions, REVIC can provide new debt and equity financing to companies in financial problems and purchase non-performing loans from the banks.
There has been some criticism of the involvement of these government organisations in the private company restructuring process. Another framework and option available for out-of-court restructuring is a process called Turnaround ADR, which is based on the Industry Vitality Competition Law. It is a process for out-of-court workouts without the involvement of the government authorities. In the Turnaround ADR, the Japanese Association of Turnaround Professionals elects a mediator and holds creditors’ meetings for the purposes of the workout discussions. In recent years, the number of Turnaround ADR cases has also been decreasing, as have the filings at court.
Although the number of filings at court has been falling, court proceedings are still seeing significant use for complicated matters, such as in cases of failure of the out-of-court workout, where the debtor has been unable to obtain the creditors’ unanimous consent to the restructuring plan, or for cases with accounting or other compliance irregularities. Filing at court is also necessary if companies have problems regarding operating cash flow.
GTDT: Describe the one or two most notable insolvency filings in your jurisdiction in the
YI: The civil rehabilitation of Takata Corporation would be the most notable insolvency filing of 2017. Takata Corporation is a global manufacturer of car safety devices and, owing to serious accidents caused by their airbags, the company owes huge amounts of money in relation to damage claims initiated by users, the settlement of disputes before the Department of Justice and recall claims by the carmakers. The Japanese parent company filed for civil rehabilitation in Japan and its US subsidiary filed for Chapter 11 in the United States.
GTDT: Have there been any recent legislative reforms? Is there a perceived need for reform?
YI: In 2013 and 2014, the Industry Vitality Competition Law and the REVIC Act were amended to facilitate the involvement of public bonds in out-of-court restructuring. Before the amendment, it was not clear whether bond claims could be reduced through a resolution at a bondholders’ meeting. Since it is practically impossible to have the unanimous consent of the bondholders in the market, it was considered that the public bond had to be excluded from the out-of-court workout if the restructuring plan required a haircut. However, by the amendment of the Industry Vitality Competition Law and the REVIC Act, as long as the restructuring plan is confined to the Turnaround ADR and the REVIC process to satisfy certain conditions (reasonable necessity of the haircut, satisfaction of the best-interests rule, etc), a bond-claims haircut through a resolution at the bondholders’ meeting is possible. However, to date, the amended provision for the bond-claims haircut in out-of-court workouts has yet to be tested in an actual case. Or at least no such case has yet been published in the public domain.
GTDT: In the international insolvency field, have there been any legislative or case law developments in terms of coordination of cross-border cases? What jurisdictions are you most likely to have contact with?
YI: In the past few years, there were a number of cross-border shipping restructuring cases in Japan. In 2015, there was the first corporate reorganisation filing for non-Japanese companies at the Tokyo District Court. Although there was no recognition and assistance system (such as the one under the UNCITRAL Model Law) in the debtor companies’ countries of incorporation, the trustee successfully completed the sale of the vessels using some creative methods.
As far as restructuring matters are concerned, Japanese companies have contacts with companies from various jurisdictions, but particularly with the US, UK, Singapore and a few Asian countries.
GTDT: In your country, is there a particular court or jurisdiction that sees a higher concentration of insolvency filings? What is the attraction of that forum?
YI: The Tokyo District Court and the Osaka District Court see a higher concentration of insolvency filings in Japan since they have broader jurisdictions and special departments to try insolvency cases. Japan adopted cross-border insolvency laws based on the UNCITRAL Model Law and the recognition and assistance for foreign insolvency proceedings has to be filed at the Tokyo District Court.
GTDT: Is it fair to describe your jurisdiction as either ‘debtor-friendly’ or ‘creditor-friendly’ in terms of how insolvency filings proceed?
YI: Japan should be categorised as a debtor-friendly jurisdiction. It has been criticised for its limited disclosure and the limited involvement of creditors for many years by international creditors. The limited involvement of creditors may be one of the reasons for Japanese lenders currently preferring out-of-court workouts. Recently, the government started considering e-disclosure in insolvency and other legal proceedings, which is expected to improve access to information for creditors.
GTDT: What opportunities exist for businesses wanting to purchase assets out of an insolvency, and how efficient is the process? What are the best ways to take advantage of opportunities in this area?
YI: A ‘363 sale’-type process is available under every type of insolvency proceeding. In urgent cases, the sale can take place very quickly. In practice, informal discussions with major creditors are essential and the court respects the creditors’ views; however, creditors are not procedurally allowed to file objections and argue the fairness of the sale before the closing. It is sometimes seen negatively from the creditors’ viewpoint in large complex cases; however, this approach often works efficiently to rehabilitate a debtor’s business, especially in SME cases.
The Inside Track
What two things should a client consider when choosing counsel for a complex insolvency filing in this jurisdiction?
If the client is pursuing something challenging, selecting a counsel who is open minded and has a strong network in the restructuring community can be important. Sometimes the trust between the parties and counsel can help to achieve creative solutions.
What are the most important factors for a client to consider and address to successfully implement a complex insolvency filing in your jurisdiction?
As a creditor, since the creditors’ involvement is relatively limited in the court proceedings, it would be important to control the majority to have a meaningful voice. Also, the proceedings are relatively fast and the buyers and creditors need to move quickly to achieve their goals.
What was the most noteworthy filing that you have worked on recently?
We represented a major creditors group that filed for corporate reorganisation of a shipping company. It was the first Japanese corporate reorganisation case for non-Japanese entities.
Anderson Mōri & Tomotsune