• Yomiuri Editorial
  • New corporate revitalization law

Help Japan’s businesses adapt to changing environment

The government intends to establish a new law to enable companies hit by the novel coronavirus pandemic and other factors to quickly rehabilitate their businesses. It is hoped that this system will encourage companies to switch to operations in keeping with the changing times.

Sales have plummeted in a wide range of industries, including tourism and dining, following the spread of the coronavirus. Many companies have taken on more debt in order to continue their operations, but it remains to be seen whether their businesses will return to their pre-pandemic state.

A situation must be avoided in which companies struggling to repay their loans are forced to declare bankruptcy.

There are two methods to reduce corporate debts and promote rehabilitation. One is legal liquidation under laws such as the Corporate Reorganization Law and the Civil Rehabilitation Law, and the other is out-of-court liquidation that is initiated by banks.

Legal liquidation establishes strict procedures before the courts, ensuring transparency and fairness. However, it is time-consuming and all credit obligations are uniformly cut off. There are some negative aspects for companies that have gone through these procedures. For example, a company could be labeled as “bankrupt,” tarnishing its image.

Out-of-court liquidation is considered to have less of an impact on a company’s creditworthiness because banks provide debt relief while credit obligations are protected. However, this method requires the consent of all creditors, which is a high hurdle.

The government intends to submit a new bill to the ordinary Diet session next year to allow out-of-court liquidation by majority vote, rather than with the consent of all creditors. To ensure fairness, such applications will require court approval, the government has said.

To avoid this method being used too readily to help struggling companies survive, eligibility should be narrowed down to companies that can and are willing to rehabilitate their businesses. It is important for them to be rehabilitated before they come to a standstill, and for those efforts to lead to the preservation of employment.

In addition to the pandemic, other factors such as decarbonization and digitization are bringing major changes to the business environment for companies.

As new ways of working such as telecommuting take hold and restaurant chains are forced to reduce their brick-and-mortar networks, demand for home delivery and takeout is growing.

The proliferation of electric vehicles will force changes at the manufacturers that produce components for gasoline-powered automobiles. To boost sales, many retailers have to adapt to digitization, including e-commerce.

It is hoped that the new law will be effectively used to encourage companies to respond to such trends. It is vital to encourage companies to switch to business models under which they are expected to grow, and to open up new fields.

At the same time, protecting creditors is also essential. A high level of consent must be required, not just a simple majority.

(From The Yomiuri Shimbun, Nov. 2, 2022)