Recent Trends in Japanese ADR for Restructuring Insolvent Businesses

Abstract

In Japan, there has been increasing use of the Turnaround ADR (Jigyo Saisei ADR) process as a means for early rehabilitation of a financially troubled company. This paper shall first outline the Japanese government’s measures for preventing bankruptcy through REVIC and SME revitalization support councils during the past twenty years. The paper will then discuss the development of and transition to the Turnaround ADR process as a private resolution process not involving the government. This paper will then examine certain issues that have been identified regarding the Turnaround ADR process. Finally, this paper shall discuss the practice in Japan for banks to have company management provide guarantees for loans to a company, the issues that arise from this for financially troubled companies, and the Management Guarantee Guidelines (Kei-eisha Hosho Gaido Rain) which were developed to address these issues in the Turnaround ADR process by reducing the obligations of management in such circumstances.