Corporate Rehabilitation

Rehabilitation proceedings may be filed by a party that meets the following eligibility requirements.

▶ Persons Eligible to File

In other words, in addition to the company itself, a creditor or shareholder holding an interest above a certain ratio may also file for rehabilitation proceedings directly.

This allows interested parties to begin the legal process if they determine that the company needs to be saved, even where the company itself does not pursue rehabilitation.

First, the court orders the advance payment of the costs necessary for the applicant to carry out the rehabilitation proceedings, and it examines the representative.

This is an initial procedure for determining the genuineness of the application and the prospects for rehabilitation.

Before the commencement of rehabilitation proceedings, if there is a risk that the debtor will manage the business recklessly or evade or conceal its assets, the court issues a decision on preservative measures to protect the assets.

Pursuant to this decision, the debtor may not engage in the following acts.

A preservative measure remains in effect until a decision to commence rehabilitation proceedings is issued.

The court may stay individual compulsory execution proceedings against the debtor's assets, and, if necessary, it may also issue a comprehensive prohibition order directed at all rehabilitation creditors and rehabilitation secured creditors.

• Prohibition of execution acts by creditors, such as attachment, provisional attachment, and auction

• Prohibition of all compulsory execution, including the enforcement of security interests

Such orders serve to preserve the debtor's business and assets, thereby ensuring the effectiveness of the establishment of the rehabilitation plan.

An application for rehabilitation proceedings may be withdrawn only before the decision to commence.

However, if you wish to withdraw the application after a preservative measure, a stay order, or a comprehensive prohibition order has been issued, you must obtain the court's permission, so careful judgment is required.

A rehabilitation plan is not merely a repayment plan; it must be a reasonable and feasible plan that creditors and the court can accept, and it must satisfy all of the following requirements.

① No violation of the law

→ The content of the rehabilitation plan must not violate the relevant laws.

② Maintaining fairness and equity

→ There must be a fair differentiation between rehabilitation secured creditors and rehabilitation creditors, and equity among interested parties must be guaranteed.

③ Compliance with the principle of equality

→ The same repayment terms must be applied among creditors holding rights under the same conditions.

④ Guarantee of liquidation value

→ The amount repaid through the rehabilitation proceedings must not be less than the amount that each creditor would receive upon liquidation of the business.

⑤ Securing feasibility

→ The plan must have a structure that can actually be carried out, and its viability must be demonstrated.

ARS proceeds during the period from the filing of the application to commence rehabilitation proceedings until the decision to commence those proceedings.

In other words, it is a system that uses the gap before the court's decision to commence rehabilitation in order to facilitate restructuring negotiations between the debtor and the creditors.

▪ How the ARS Procedure Is Commenced

The debtor or a creditor may apply to the court to refer the matter to ARS, and the court may also recommend ARS in light of the circumstances of the interested parties.

▪ Duration of ARS

In principle, the ARS period is limited to a maximum of 3 months. Generally, an initial 1 month is granted, after which it may be extended by 2 months as needed.

However, if the court finds it necessary, an extension beyond 3 months is also possible.

▪ Measures Following the ARS Outcome

If a restructuring plan is agreed upon between the creditors and the debtor, the debtor may withdraw the application to commence rehabilitation proceedings.

(Even where a preservative measure has already been issued, the court grants the withdrawal of the application.)

If the negotiations break down, on the other hand, the court reviews whether to commence rehabilitation proceedings.

▪ Prompt Stabilization of Legal Relationships

ARS reduces uncertainty by encouraging prompt negotiation among interested parties at the stage before the court commences rehabilitation proceedings.

▪ Promotion of Voluntary Negotiation

Because the parties prepare a restructuring plan directly, without the court's intervention, practical and realistic solutions can be developed.

▪ Improved Procedural Efficiency

Through ARS, unnecessary legal disputes and costs before the commencement of rehabilitation proceedings are reduced, supporting a smooth corporate rehabilitation.