In brief: guarantees and collateral for the financing of acquisitions in Japan


Guarantees and collateral

Linked company guarantees

Are there any restrictions on providing related corporate guarantees? Are there any limits on the ability of affiliated companies registered abroad to provide guarantees?

While there are no financial aid rules in Japan that would lead to restrictions on a related company’s ability to provide collateral, the corporate benefit is an issue. The concept of corporate advantage in Japan relates to the “duty of care” and “duty of loyalty” of directors. Directors are required to act for the benefit of the company. Since the ultimate beneficiaries of the company are its shareholders, it is generally understood that any action which does not harm the interests of the shareholders will not violate the duties of diligence and loyalty.

On this basis, guarantees (guaranteed or not) provided by related companies having a common 100% ultimate shareholder are generally not limited by social benefits.

However, where there are minority shareholders, the social benefit can complicate any analysis to determine whether related corporate guarantees can be provided.

There is no restriction under Japanese law on the ability of related companies registered abroad to provide guarantees, whether guaranteed or not.

Target assistance

Are there specific restrictions on the target providing guarantees, sureties or financial assistance in connection with an acquisition of its shares? What steps can be taken to enable such actions?

Under Japanese law, there is no equivalent legal restriction on financial assistance or the provision of corporate guarantees in connection with the acquisition of shares per se. However, questions relating to employee benefits (ie whether directors have properly fulfilled their duty of care and duty of loyalty in their decisions to provide guarantees) also apply to a target guarantee.

Types of security

What types of security are available? Are fixed and floating charges allowed? Can a general lien be granted on all the assets of a business? What are the typical exceptions to an all-asset grant?

Japanese law does not provide for a general form of security over all assets similar to a floating charge or general lien. Subject to certain limited exceptions (which are generally not relevant in the context of an acquisition financing transaction), the guarantee in Japan must be granted on an asset-by-asset basis.

In the context of an acquisition financing transaction in Japan, the security package generally covers all the assets of the target group and the acquirer, as well as all the shares issued by the target group and the acquirer. However, it is common in Japan that the transfer or other assignment of trade receivables and certain other contractual rights (for example, rental deposits) are contractually prohibited. In such circumstances, these assets are generally excluded from any security package.

Requirements for perfecting a security

Are there specific laws governing the perfection of certain types of guarantees? What types of notice or other action must be taken to put a security interest in default?

The method of refining collateral differs depending on the type of collateral granted and the type of asset provided as collateral.


Under the Companies Act, an unlisted company may, in its articles of association, choose whether or not to issue physical share certificates.

In the case of a company issuing share certificates, a pledge is constituted by an agreement between the parties and the physical delivery of the share certificates to the pledgee. The pledge of shares is made perfect by the continued possession by the pledgee of the share certificates.

In the case of a company not issuing share certificates, a pledge is established by agreement between the parties and formalized by entry in the register of shareholders kept by the issuing company. Lenders generally require the issuance of share certificates when establishing collateral on shares to ensure their control over any subsequent trading in the shares.

When transactions relate to dematerialized shares of a listed company, transfers of these shares are made through a book-entry system managed by the Japan Securities Depository Center (JASDEC). A pledge on dematerialized shares is created by an agreement between the parties, and the transfer of the shares to the pledge sub-account of the pledgee held with a participant in the JASDEC system.


The security on the receivables can be constituted by a pledge or an assignment of security. Essentially, a pledge is typically used to take collateral on receivables (eg, bank deposits, insurance products, and intercompany loans); however, an assignment of collateral is commonly used to take security on trade receivables.

There are three options for completing a pledge or assignment of collateral on receivables:

  • certified notice by date to the underlying debtor (usually delivered by certified mail);
  • obtaining certified consent by date of the underlying debtor (date on which the certification is carried out by a notary); or
  • registration of pledge or assignment at the Office of Legal Affairs.

Of these options, certified consent by date is typically used (including for bank deposits, insurance products, and business-to-business loans), while registration is more commonly used for trade receivables, especially when there is a large number of underlying obligors or securities providers. does not want the underlying obligors to be aware of such assignment of collateral (mainly from a business point of view). Note, however, that the registration of an assignment only improves the assignment vis-à-vis third parties. Registration does not perfect the assignment against the underlying debtors and notice to the underlying debtors will always be required to complete the assignment against those debtors.

Movable property

A security assignment for movable property is established by agreement between the parties and accomplished either by handing over the movable property to the secured creditor or by registering the security assignment at the Office of Legal Affairs. Physical delivery of assets is not required if the parties agree that the collateral provider has delivered the underlying assets but holds them on behalf of the secured parties. This form of delivery is called “constructive delivery”.


A mortgage on real estate is established by agreement between the parties and, to be perfect, must be registered with the local legal affairs office in which the relevant property is located. The application for registration is made by both parties to the mortgage, usually through a qualified magistrate acting on behalf of both parties. A registration fee of 0.4 percent of the covered bonds (i.e. the principal amount of the loan) is imposed upon initial registration and a nominal fee will apply to any subsequent registrations securing the same. obligations.

Intellectual property

Registration with the Patent Office is required for the establishment of a pledge on trademarks and patents. A copyright pledge is established by agreement between the parties and, to be perfect, must be registered with the Cultural Affairs Agency or designated registration body.

Renew a security

Once a security is acquired, are there renewal procedures to keep the lien valid and registered?

In Japan, it is not necessary to renew the perfection of most security interests to maintain its effect. An exception to this basic rule concerns the registration of an assignment of collateral (or pledge) of receivables and movable property, which is likely to expire after 10 years for movable property and receivables against unspecified debtors and 50 years for claims on specific debtors). In this case, an extension of the underlying record will be necessary.

Consent of stakeholders for guarantees

Is there a “works council” or other similar consents required to approve the provision of guarantees or surety by a company?

There are no such requirements under Japanese law.

Grant a guarantee through an agent

Can collateral be given to one agent for the benefit of all lenders or must collateral be given to lenders individually and then changes must be executed on an assignment?

The basic principle of Japanese law is that collateral must be given to all lenders individually and that an agent cannot hold collateral on behalf of or for the benefit of all lenders. If a secured lender assigns all or part of its rights in a secured loan to a third party, the security will be automatically or contractually (depending on the nature of the security) assigned to the assignee, and the perfection of this security assignment the interest will have to be completed.

An alternative structure is a security trust, where an authorized trustee holds the security in trust for the benefit of each lender.

In such a case, each secured party will obtain a beneficial interest in the trust (TCC) representing its interest in the assets of the security trust. When a lender assigns its loan to a third party, the assignor will also assign its related TCC to the assignee, without disturbing the collateral, which remains held by the security trustee. While there have been a number of acquisition finance transactions in Japan where a security trust has indeed been used (particularly in large transactions where active negotiation of the secured loan in the secondary market was expected), it is still not commonly used in practice due to the expense. and the time required due to the involvement of an approved third party trustee. Another alternative structure is parallel debt, where a borrower owes the same debt to both a collateral agent and to the collateralized parties in parallel, and the security agent holds collateral to secure that parallel debt owed to him by the borrower. To date, parallel debt structures have not been used in Japan despite strong arguments supporting their theoretical possibility. However, due to recent changes, the amended Civil Code now recognizes, among other things, that joint and several claims can be created by agreement between the parties. This change could favor the use of parallel debt structures in the future.

Protection against creditors before release of collateral

What protection is usually afforded to creditors before the collateral can be released? Are there ways to structure around such protection?

In Japan, no legal protection is given to creditors before the collateral can be released.

Fraudulent transfer

Describe the fraudulent transfer laws in your jurisdiction.

Under the Civil Code, a creditor can ask (within certain time limits) a court to set aside a fraudulent act committed by a debtor who knew that such an action would harm the creditor, unless anyone who has benefited from a such act, or any person having succeeded in this benefit, was a third party in good faith at the time of the act or the succession to this benefit and would be harmed by such cancellation. Such a fraudulent act may include the constitution of a security right over the assets of a target company or its subsidiaries when such persons are in financial difficulty.

Date declared by law

Correct on:

Please indicate the date on which the law stated here is correct.

February 4, 2021

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