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Debtor-in-possession proceedings in Japan - an opportunity for distressed investors or a cautionary tale?

08 March 2013

Introduction

There has been a rise in distressed situations in Japan in recent years – since 2010, Elpida Memory, Inc. ("Elpida"), Victor Company of Japan, Limited, Takefuji Corporation, Japan Airlines Corporation, AIFUL Corporation and Willcom, Inc. have all become subject to insolvency procedures in Japan. This trend looks set to continue as many areas of Japanese industry continue to come under pressure. This, of course, presents investment opportunities for those willing to consider distressed situations. However, it is important that any potential investor understands the legal and cultural complexities in Japan before committing to any investment decision that from an analysis of the financial data alone seems to promise a significant return.

In this article we take a brief look at an insolvency proceeding that has been introduced recently in Japan and has garnered a lot of attention – "debtor in possession" corporate reorganization proceedings ("DIP Proceedings"). After summarising its key elements, we set out a short critique of DIP Proceedings and highlight issues that creditors should be wary of.

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