Vol 4 (2007) - Issue 2

Article preview

Japanese Cross-Border Insolvency Law

The Law on Recognition of and Assistance in Foreign Insolvency Proceedings (hereinafter cited as ‘LRAF’) was enacted in November 2000 and became effective in April 2001.1 The LRAF was enacted based mostly on the UNCITRAL Model Law on Cross-Border Insolvency (hereinafter cited as ‘Model Law’). The provisions of the LRAF are not exactly the same as the Model Law in that they amend some of the provisions included in the Model Law, wherever necessary, to be compatible with the entire Japanese legal systems.2 However, I believe the LRAF adopts the same concepts as the Model Law in substance so that the provisions of the LRAF are not contradictory to those of the Model Law. Rather, some provisions in the LRAF are more open to foreign insolvency
proceedings than the Model Law. The differences between the LRAF and the Model Law are summarised as follows.

1. Differences between the UNCITRAL Model Law and Japanese law

According to the LRAF, the recognition order of a foreign main proceeding does not have any automatic effect in itself, but the court may order several reliefs at the same time or after issuing the recognition order at the request of a foreign representative and/or other interested parties or its own motion. The reliefs include stay of or prohibition on execution or enforcement procedure, stay of action of any kind, stay of enforcement of secured rights and other appropriate reliefs. The court also may order the debtor not to dispose of its assets and prohibit any payments to its creditors. Moreover, the court may cancel the stayed execution and enforcement proceedings enabling the use of attached
assets to continue the debtor’s business, which is beyond the scope of the Model Law.
The court may appoint a ‘recognition trustee’ who has all the powers to possess and dispose of the debtor’s assets and operate its business at the request of the recognised
foreign representative and/or other interested parties or its own motion upon the recognition order. It is expected that the recognised foreign representatives will be appointed as the recognition trustees by the court in most cases. The Model Law is silent on the matter of whether a foreign representative is able to turn over the debtor’s assets to foreign countries. But the LRAF explicitly provides that the court may authorise the recognition trustee to take the above action if the court is satisfied that interests of local creditors are not unduly injured.
The LRAF does not, in principal, admit concurrent recognition proceedings when a domestic insolvency proceeding on the same debtor is pending in Japan. But, in exceptional cases, despite a pending domestic proceeding, a court may recognise the foreign main proceeding if the court finds that the recognition of the foreign proceeding is more beneficial to creditors generally and the interests of local creditors are not unduly injured in the foreign main proceeding compared to continuing the domestic pending case.
Although the LRAF does not provide for direct communications between the Japanese courts and the foreign court, it does not prohibit direct court-to-court communications either.
Although the LRAF is silent on the standing of foreign representatives in avoiding preference and fraudulent conveyance in Japan, it does not deny the capability of foreign representatives to exercise an avoiding power. Moreover, the Japanese courts are unlikely to dismiss the avoiding actions brought by foreign representatives only because of the lack of a clear provision that admits the standing for doing so. But the conflict of laws or private international laws may still be controversial.