Master class in Japanese Insolvency Law: Dr Shinjiro Takagi visits the Asian Law Centre
By Stacey Steele
Japanese insolvency law has come a long way since the days when baseball bats were used to negotiate with – or by – yakuza, who are now euphemistically incorporated into the cohort of “anti-social forces”. At a recent visit to the Asian Law Centre at the Melbourne Law School, Dr Shinjiro Takagi reminisced about dodging shady connections as a young insolvency lawyer in Osaka and compared those experiences with the sophisticated market for professional insolvency services in Japan today.
Stacey Steele, Associate Director (Japan) at the ALC reflects below on her discussions with Dr Takagi during his visit.
Dr Shinjiro Takagi: the early days
Dr Takagi’s career stretches over five decades after his qualification as a lawyer (bengoshi) in 1963. He spent a decade as a judge and more recently he is a senior advisor to multinationals and governments. He recalls his early days as a new judge, but experienced practitioner, when he questioned the competence of trustees who presided over insolvency proceedings which had been on foot for over a decade. He was one of a number of reformers who pushed for a new approach to insolvency during the 1990s, coinciding with global movements for reform of insolvency law, Japan’s own economic malaise, and a general recognition that this important area of the economy should not be left to so-called shady elements of society. The Emperor of Japan bestowed the Rising Sun, Golden & Silver Star Order on Dr Takagi in 2007.
Out-of-court workouts in Japan today and the role of main banks
A key concern for Dr Takagi was, and continues to be, the development of effective out-of-court workout mechanisms for financially distressed companies. He was instrumental in assisting the Financial Services Agency to develop an out-of-court workout framework for Japan based on the London Approach and INSOL Insolvency Principles in an effort to help tidy up Japan’s non-performing loans at the beginning of the 21st Century. He was also Chair of the Industrial Revitalization Corporation of Japan from 2003-7, a fore-runner of contemporary quasi-government asset management companies which are also emerging in the People’s Republic of China this decade. He was also instrumental in the formulation of the business revitalization alternative dispute resolution (BRADR) procedure which received intensive government and industry support after the so-called Lehman Shock in 2008.
Dr Takagi has witnessed a decline in the influence of main banks in Japan from a period when they could dictate terms to debtors and other creditors, to a contemporary environment where they often defer to independent arbiters such as the Japanese Association of Turnaround Practitioners (“JATP”) as part of a BRADR proceeding to build consensus and reach a resolution. As a founding member of the JATP, Dr Takagi is argues that the BRADR provides an effective competitor to court-driven proceedings in Japan. These changes have been largely influenced by the emergence of a global capital market in Japan, participation by foreign creditors including hedge funds, and experienced practitioners such as Dr Takagi who have looked to other markets for innovative ways to resolve Japan’s bad debt crisis. Yet, the Japanese financial market remains largely driven by large, institutional, financial institutions which have an influential say in the resolution of financially distressed companies.
What is the future for insolvency practitioners in Japan?
The number of insolvencies in Japan has decreased over the last two or three years in a low interest rate environment. Dr Takagi worries, however, what will happen if interest rates rise when government-sponsored quantitative easing is phased out. He argues that this environment will require the development of a majority rule for the cram down of dissenting creditors in BRADR proceedings, which he has already proposed. Dr Takagi is also concerned that the lower number of insolvency cases in Japan means that Tokyo is losing some of its insolvency expertise which was built up in the 1990s and 2000s, but he does note that large firms are interested in building their insolvency practices.
In terms of his own future, Dr Takagi is interested in promoting out-of-court insolvency mechanisms in other countries and will take up a Visiting Research Scholar position at the University of Hawai’i next year to focus on his next career as an academic. He has always regretted not studying overseas as a younger man.
I hope that I have the same level of intellectual curiosity in my ninth decade!
Delegation from Vietnamese Ministry of Justice
From 11-17 October, a delegation of 15 officials of the Vietnamese Ministry of Justice visited the ALC. The group took part in a week-long study tour that covered a range of legal issues, including privacy law, freedom of information law, parliamentary drafting, and the regulation of NGOs and charities in Australia.
The Ministry of Justice sees this course as a key part of the 5-year training program that the Ministry of Justice now offers its new interns. This is the first iteration of this 5-year program that runs to 2020.