(a) Is the system of ownership rights in respect of both land and other property reasonably stable and certain in this economy?

Yes.

(b) In particular:

(i) is the system of land ownership and rights sufficiently developed to encourage lending on the security of land; and

Yes.

(ii) is the system of ownership and rights in relation to property other than land sufficiently developed to encourage lending on the security of such property?

Yes. With respect to floating charges, there is a special law in which if a company issues debentures a floating charge on all the assets of the company can be established to secure payment of the debentures. The rights which can be secured under this security are only debentures. There is another special law which creates special mortgages on factory facilities as a whole. The rights which can be secured under the factory mortgage are not limited.

(a) What mechanisms for taking of security over assets of a corporate borrower are available to financiers in this economy (for example mortgages over land; fixed and/or floating charges over personal property; legal and/or equitable mortgages; debentures; pledges; liens, etc.)?

Mortgages over land, automobiles, aircrafts, ships, construction machines or factories, assignment of property as security, charges on receivables, insurance money, stocks, securities, bank accounts, patents and other industrial property or other claims, and pledges on movables. Floating charges on the whole assets of a debtor company are recognised only as security for debentures and the utilisation thereof has not been active. There has been no receivership in Japan except as provided for in the special law as to floating charges.

(b) In practice, which of these types of security are most commonly employed by financiers?

Mortgages over land and buildings.

(c) Is there a system of registration in this economy for any of these types of security taken by financiers?

Yes.

(d) To what extent are priorities between competing securities regulated?

Regulated under the Civil Code very well.

(a) When a corporate borrower is in financial difficulties and a secured debt has become due, would it be usual or customary for a secured lender and/or the corporate borrower to attempt to negotiate a suitable arrangement for repayment and/or refinancing before the secured lender invokes legal enforcement methods?

It depends on the case, for example, the scale of the debtor company, the extent of security cushion, the depth of relationship between the secured creditor and the corporate borrower and etc.

(b) What mechanisms are available to security holders to enforce their securities under the legal system of this economy (For example, power to take possession of the property, power to appoint a receiver, power to foreclose on a mortgage, power to sell the secured property, power to wind up the corporate borrower)?

The power to foreclose a security property is common to almost all types of securities. A secured creditor has no general power to wind up the corporate borrower or to appoint a receiver. Secured creditors under certain statutory liens or pledges can keep possession of the property.

(c) Do these methods include that a secured creditor may 'self-enforce' the security (ie, without the need for an order of a court or the consent of a regulatory authority)?

Under assignment of property as security, a secured creditor can obtain the security property without the need for an order of a court.

(d) In practice, which method(s) of enforcement are most commonly employed by security holders?

Foreclosure

(e) Briefly describe the process involved in these method(s).

Auctions are made under the foreclosure procedure to sell security properties. If the security property is a real restate, the minimum price for the auction is determined by the court based on the appraisal by the court-appointed appraiser. The bid must be made above the minimum price. If no bid has been made at the minimum price, the court will review it and revise the minimum price. Auctions will be made again at the revised minimum price. Any person can participate bid on auctions but in many cases a real estate company makes bid and becomes a buyer under the procedure. The buyer in an auction has to pay the purchase price to the court by the date fixed by the court. The court distributes the purchase price to the secured creditor in accordance with the law.

(a) How effective is the judicial or court system for the purpose of enforcing secured property rights?

The court system for enforcement is effective. Assignment of properties as security is frequently utlised also since it can be enforced without involvement of the court.

(a) What effect, if any, does the commencement of insolvency proceedings in respect of the corporate borrower (ie where an application has been filed for some type of insolvency procedure but has not yet been adjudicated) have on the process of security enforcement?

No effect on the process of security enforcement.

(b) What effect, if any, does the formal pronouncement of an insolvency administration in respect of the corporate debtor have on the process of security enforcement?

1 Corporate Reorganization:

The process of security enforcement is stayed.

2 Corporate Arrangement under Commercial Code:

The process of security enforcement can be stayed under certain conditions upon application.

3 Other Insolvency Procedure:

No effect on the enforcement process.