Preventive Debt Restructuring in Japan: A New Legislative Approach
By Midori Yamaguchi( NextGen Class XIII)
In June 2025, Japan enacted a landmark statute introducing a preventive debt restructuring framework for enterprises that are at risk of falling into financial distress but are not yet insolvent. Commonly referred to as the Early Business Recovery Act( official English title pending; Act No. 67 of 2025 1), this legislation establishes a hybrid mechanism involving a neutral third-party organization with limited court involvement. The framework allows financial debt to be restructured through supermajority creditor approval while preserving confidentiality and minimizing reputational and operational disruption. It is designed to bridge the longstanding gap between out-ofcourt workouts and formal insolvency proceedings and draws inspiration from comparable regimes abroad, particularly the preventive restructuring frameworks developed under EU Directive 2019 / 1023.
The Act is expected to come into force by the end of 2026 and to have a significant impact on Japan’ s corporate debt restructuring landscape. This article outlines the economic background and the principal procedural features of the new framework. The author was seconded to the Ministry of Economy, Trade and Industry( METI) during the drafting process; however, the views expressed are all personal.
1
For the text of the Act, see https:// laws. e-gov. go. jp / law / 507 AC0000000067 / 20280613 _ 000000000000000( only in Japanese). Link accessed January 15, 2025.
I. Economic and Legislative Context 1. Economic Background Corporate debt in Japan has risen materially, by approximately 120 trillion yen since before the COVID-19 pandemic. 2 At the same time, businesses continue to face persistent challenges such as higher raw material costs, inflationary pressures, and labor shortages. Against this backdrop, corporate insolvency cases exceeded 10,000 cases in both 2024 and 2025, 3 the highest annual totals in over a decade. 2. Challenges in the Existing Debt Restructuring Options Japan’ s current debt restructuring toolkit consists primarily of formal insolvency procedures and out-of-court workouts. Court-led procedures, such as civil rehabilitation and corporate reorganization, enable majority-approved restructuring across all creditors but are public in nature and often entail significant reputational and commercial harm. By contrast, out-of-court workouts, including structured frameworks such as Turnaround ADR, primarily apply to financial claims held by banks and other financial institutions and generally offer greater confidentiality and flexibility. However, these workouts depend on unanimous consent from financial creditors, which often impedes their effectiveness. Although Japan
continued on page 30
2
Calculated based on the Flow of Funds Accounts published by the Bank of Japan( March 21, 2025).
3
Based on Nationwide Corporate Insolvency Statistics published by Tokyo Shoko Research( January 14, 2025 and January 13, 2026). The statistics cover corporate insolvency cases nationwide involving liabilities of JPY 10 million or more.
29