Japanese insolvency terms for dummies

When I started translating Japanese contracts, one of the most confusing aspects was the array of similar legal terms that commonly pop up in the “termination” section. Here are some common ones, along with what they actually mean.

差押 (sashi-osae)
Attachment. This is where a creditor “locks down” certain assets to keep the debtor from selling them or giving them away. Once attachment is completed, the debtor cannot legally transfer their ownership of the assets in question. Attachment usually precedes compulsory execution (below). The term is also used to refer to government seizure of evidence during a criminal investigation.

仮差押 (kari-sashi-osae)
Provisional attachment. This is a form of attachment which takes effect during litigation, where there is a chance that the defendant/debtor will have to eventually pay the plaintiff/creditor. If the defendant wins, the attachment is lifted. Assets can legally be transferred when a provisional attachment is in effect, but the transfer can be rescinded later if the provisional attachment becomes a regular attachment.

強制執行 (kyosei-shikkou)
Compulsory execution. This is a court-ordered process to seize the debtor’s assets and sell them at a public auction (競売 keibai), with proceeds going to pay off the creditor(s) and any surplus going back to the debtor. There are separate procedures for real estate, ships, movable assets and intangible assets.

仮処分 (kari-shobun)
Provisional injunction (or, when translated too literally, provisional disposition). This is a court order of some kind, usually to refrain from doing something like selling an asset or negotiating a transaction; it is given during litigation and requires a showing of necessity by the plaintiff as well as (usually) some sort of collateral to compensate the defendant in case the litigation is dismissed.

破産 (hasan)
Bankruptcy. In Japan, this legal term is only used for liquidation bankruptices, not for reorganization bankruptcies. Bankruptcy can be initiated by either the debtor or their creditor and is supervised by a court, which usually appoints an independent trustee to manage the bankruptcy if there are enough assets to pay the trustee. This is by far the most common legal procedure for adjusting debts, with over 100,000 annual petitions every year for the last ten years.

会社更生 (kaisha kousei)
Corporate reorganization (new type). This is a procedure intended to keep large distressed companies afloat by adjusting the due date (and sometimes the amount) of their financial liabilities. It is supervised by a court but requires the consent of creditors and shareholders in varying proportions depending on how the plan would affect their interests. If nobody can agree, the company goes into bankruptcy (above). Shareholders are generally wiped out, management get fired and replaced by a court-appointed administrator, and new equity investors (often prior creditors) get to choose new management. This is the procedure used by JAL, NOVA, Willcom, Dai-Ichi Hotels, Huis ten Bosch and most other high-profile corporate bankruptcies in the last decade: usage of the procedure peaked at 88 filings in 2002, although statistics are only available through 2008 so there may have been a second peak more recently.

民事再生 (minji saisei)
Civil rehabilitation. This is a smaller-scale version of corporate reorganization. It can be used by individuals, but the most frequent users are small companies, mainly because the procedure allows management to remain in control. The procedure is also conducive to selling a business in order to repay its creditors (Lehman Brothers Japan being a recent prominent example), and can sometimes be more beneficial from a tax perspective.

会社整理 (kaisha seiri)
Corporate reorganization (old type). This is an outdated term for an outdated form of small business corporate reorganization which legally ceased to exist in 2000 (although a few cases lingered in courts for several years after that). It was effectively superseded by the civil rehabilitation procedure.

解散 (kaisan)
Dissolution. This is a voluntary procedure which companies can execute at any time by a resolution of a super-majority of shareholders, whether or not the company is broke. Once shareholders vote to dissolve, the company is liquidated (清算 seisan) by a court-appointed supervisor. Creditors get paid off first (in order of priority), followed by shareholders. If there is not enough money to go around, or if there is some other insurmountable problem with the liquidation procedure, the company sometimes goes into special liquidation (特別清算 tokubetsu seisan), which gives the court more leeway to preserve assets and halt asset seizures.

If you want to read a lot more, there is an online outline of Japanese corporate insolvency law here, courtesy of the massive law firm of Anderson Mori & Tomotsune.

8 thoughts on “Japanese insolvency terms for dummies

  1. Favorite conversation with US real estate lawyer in Tokyo from 2008 regarding a bankrupt asset manager: “Those guys filed for hasan! Can you believe it? No minji saisei or nothing, they went for hasan, the whole nine yards! I’m getting to old for this shit!”

  2. This is very helpful thanks. I was aware of some but not all of the details, especially the difference between the different types of bankruptcy procedures.

    Little known fact – the conditions for corporate dissolution are a question on the Japanese stock broker exam.

  3. That’s a good point, Adamu—but I think it’s more interesting that no other forms of corporate death/disability are on the exam (as I recall, anyway), even though any other form is probably more directly relevant to the broker’s work…

  4. Thanks once again for a solid terminology post. Find them useful myself and I point my translation students to them as well.

  5. Great post.

    OT law question on businesses and the courts: In Japan, if someone were to file suit against a business, is there a status similar to class action in the US?

  6. SBS: No. There is “group action” litigation (Joe may have a better translation) that allows for multiple parties, but nothing similar to the US version where one person can sue on behalf of an entire class of people.

  7. I don’t think there’s a term for the type of litigation, but the “class representative” is called a 選定当事者.

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