By enabling businesses to secure financing based on their enterprise value, the system holds significant potential to support startups and SMEs while improving the efficiency of business recovery processes. However, its ultimate success will depend on its implementation and its ability to address the Japan’ s financing environment.
II. The Introduction of a New Majority-
Based Out-of-Court Workout 1. Background and Challenges Japanese businesses have faced increasing financial difficulties in recent years, and Outof- court workouts, in comparison with In-court legal restructuring procedures, have been a key mechanism to implement smooth debt restructurings. However, since the existing system requires unanimous consent from all creditors, it is said that making consensusbuilding sometimes a barrier to swift and effective restructuring. To address these challenges, a new framework introducing majority-based decision-making has been proposed.
2. Discussions on Legalization
This proposed system, which allows majority approval to facilitate debt restructuring outside court supervision, has been a subject of extensive debate. While some view it as a necessary evolution of private restructuring, its necessity and feasibility remain points of contention among practitioners. One of the issues under discussion is whether the limited involvement of courts could violate constitutional property rights.
3. Progress in Government Discussions
In 2024, the government established the“ Business Reconstruction Subcommittee” under the Industrial Structure Council to explore the potential legalization of this system. In June 2024, a draft framework was presented, followed by a public consultation process to gather a wide range of opinions.
While discussions are ongoing, there are still unresolved concerns regarding the system’ s practical effectiveness and operational challenges. These issues are being carefully examined to refine the framework further.
4. Future Challenges
The proposed system is expected to enable swift and flexible business revitalization by allowing debt restructuring through majority voting, even without unanimous creditor consent. It offers an opportunity to support financially distressed businesses at an early stage, safeguarding their value and contributing to economic stability. However, at this moment, challenges remain, particularly in ensuring fairness among creditors and addressing practical implementation concerns.
If legalized, this system could mark a turning point in Japan’ s out-of-court restructuring procedures. Nonetheless, debates within the legal and business communities, as well as within the government, are far from settled, highlighting the need for continued careful deliberation.
Hiroyasu Ueda Partner, Anderson Mori & Tomotsune
Hiroyasu Ueda has over 30 years of experience in restructuring, insolvency, and bankruptcy, advising debtors, creditors, and stakeholders across various industries. He has served as a liquidator in major bankruptcy cases and is recognized by Chambers Asia-Pacific as a leading insolvency lawyer. Ueda is a member of the International Insolvency Institute.
Zentaro Nihei Partner, Anderson Mori & Tomotsune
Zentaro Nihei specializes in complex restructuring, insolvency, and special situation investing, advising hedge funds, private equity firms, and secured creditors in both domestic and cross-border cases. He has deep expertise in distressed M & A and asset recovery. Nihei is a member of the International Insolvency Institute.
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