Preventive Debt continued from page 29 has developed out-of-court mechanisms over the past two decades, these frameworks have remained limited in scope due to their reliance on creditor consensus and lack of effective means to bind dissenting creditors. 3. Legislative Development Recognizing this structural gap, METI developed a preventive debt restructuring regime aimed at enterprises that are not yet insolvent but face a risk of financial distress. The framework was inspired by international models, including the UK’ s Scheme of Arrangement and Restructuring Plan and Germany’ s StaRUG, while also incorporating elements familiar to Japanese practice, such as oversight by an independent third-party organization.
A distinctive feature of the Act is its hybrid structure: the debt restructuring process is conducted as a non-public procedure under third-party supervision, with court involvement limited to approving resolutions adopted by a supermajority of creditors. The enactment of the Act reflects the culmination of extensive academic and practitioner debate and has been accelerated by the global shift toward preventive restructuring.
II. Key Features of the New Framework
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1. Eligible Debtors and Scope of Claims
The Act applies to enterprises at risk of falling into financial distress, a stage that precedes the threshold required for formal insolvency proceedings. The regime is industry-neutral and size-neutral, although it is expected to be used mainly by large and mid-sized companies with a relatively large number of financial creditors.
Only financial debts existing at the commencement of the procedure may be restructured. Eligible creditors include banks, insurance companies, licensed money lenders, government-affiliated entities, local governments, and licensed servicers that have acquired such claims held by these entities. While the secured portions of claims are excluded from modification under the majority voting mechanism, they may be subject to procedural stays that prevent asset enforcement during the process.
2. Commencement and Third-Party Confirmation
To initiate the procedure, the debtor must submit an application to a neutral third-party organization to be designated by METI, which must confirm that the statutory conditions are met. These conditions include the existence of a risk of falling into financial distress, the eligibility of the claims, a reasonable prospect of obtaining creditor approval, compliance with the liquidation value test, and the absence of ongoing in-court insolvency proceedings. Upon issuance of the third party’ s confirmation, the designated organization notifies the affected creditors. 3. Temporary Stays Following commencement, the designated third-party organization will request that affected creditors voluntarily suspend enforcement actions. Where necessary, the court may, upon petition by the debtor or any affected creditor, issue a legally binding temporary stay to prevent enforcement or realization of security interests.
4. Submission of Proposal and Early Business Recovery Plan
Within six months of third-party confirmation, the debtor must submit a written proposal setting out the terms of the claim modifications, together with an early business recovery plan. The plan must explain the business background, the debtor’ s current financial and operational status, future projections, details of security interests, and any other matters specified by ministerial ordinance. Equal treatment of affected creditors is required unless differential treatment can be justified. 5. Review by the Third-Party Organization The designated third-party organization will review the debtor’ s proposal and plan to assess legal compliance, feasibility, and consistency
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