Appointing and Remunerating Insolvency Practitioners in Japan: The Roles of Japanese Courts

• Author: Stacey Steele
• DOI: http://doi.org/10.1002/iir.1270
• Date: 01 March 2017
• Published date: 01 March 2017

Appointing and Remunerating Insolvency

Practitioners in Japan: The Roles of

Japanese Courts

Stacey Steele*

Asian Law Centre, Melbourne Law School, Melbourne, VIC, Australia

Abstract

Japanese courts play an important role in appointing and remunerating insolvency

practitioners. This article examines the roles of courts on the basis of academic and

practitioner literature, judicial decisions and interviews with practitioners and for-

mer and current judicial officers. First, the article focuses on the methods used to

appoint practitioners and the evolution of the system at the Tokyo District Court,

Japan’s busiest insolvency jurisdiction. Second, the article examines the courts’

roles in reviewing and setting practitioners’remuneration through another case

study from the Tokyo District Court. Practices trialled and developed in Tokyo

are often adapted for local purposes around Japan. The article argues that the

courts’involvement has helped to keep the cost of resolving corporate insolvency

in Japan down. The review and setting of remuneration deserves particular atten-

tion with the increasing prevalence of pre-packaged and informal restructuring

that prima facie appears to allow for greater freedom to set remuneration as

between the practitioner and debtor-client. The article uses a case study to

demonstrate that pre-packaged restructuring is still influenced by the court, how-

ever, arguing that the relationship between the court and practitioners remains

important. Finally, the article suggests that changes in Japanese insolvency practice

and external factors may require the courts and the profession to revisit ap-

proaches to appointing and remunerating practitioners. Copyright © 2017 INSOL

International and John Wiley & Sons, Ltd.

*E-mail: s.steele@unimelb.edu.au

†

I thank Reegan Grayson-Morison, Principal Research

Assistant, Asian Law Centre, for her assistance with in-

terviews in Japan and research, Ms Emiko Morisato

(Esq.) for her assistance with research in relation to

the regulation and disciplining of insolvency

practitioners in Japan, Ms Kaori Kano, Principal Re-

search Assistant, Asian Law Centre, for her research

assistance and project management, and Mr Naoya

Mori, Japaneasy for his assistance with understanding

Japanese materials.

Copyright © 2017 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 26: 82–118 (2017)

Published online in Wiley Online Library

(wileyonlinelibrary.com). DOI: 10.1002/iir.1270

I. Introduction: Japanese courts’Roles in Appointing and Set ting the

Remuneration of Insolvency Practitioners

This article examines the courts’roles in appointing and setting the remuneration

of insolvency practitioners in Japan on the basis of on an analysis of Japanese

insolvency legislation, academic and practitioner literature, judicial decisions and

interviews with practitioners and former and current judicial officers. This article

does not consider disciplinary mechanisms for court-appointed insolvency practi-

tioners, although the issues of misconduct and remuneration are sometimes

linked.

1

Research in Japanese found few cases where misconduct by insolvency

practitioners has been formally reported or prosecuted.

2

Even where there has

been disciplinary action against bengoshi (licensed attorney) who act as insolvency

practitioners, including due to objections to remuneration, the number of reported

cases is small especially when compared with the number of insolvency filings.

3

The article argues that court involvement in appointing and remunerating insol-

vency practitioners in Japan has contributed to this situation where there are few

1. Insolvency practitioners also act in the shadow of

the courts’and other supervisory bodies’disciplinary

powers. In the Australian context, see Stacey Steele,

Vivien Chen and Ian Ramsay, ‘An Empirical Study

of Australian Judicial Decisions relating to Insolvency

Practitioner Remuneration’(2016) 24 Insolv LJ 165–

191.

2. There are various articles dedicated to the trustee’s

duty of reasonable care of a good manager (zenkan chūi

gimu), however. See, for example: (1) Yasuyuki Nakai,

‘Hasan kanzai nin no zenkan chūi gimu’(Bankruptcy

Trustee’s Duty of Reasonable Care of a Good Man-

ager) (2007) 1811 Kinyūhōmu jijō(Financial Law Journal)

40. Nakai offers a bengoshi perspective on two Supreme

Court of Japan cases dealing with the duty; (2) Makoto

Ito, ‘Hasan kanzai nin no shokumu saikō’(Re-examin-

ing a Bankruptcy Trustee’s Professional Duties) (2005)

1183 Hanrei Taimuzu (Hanrei Times) 35–46; (3) Makoto

Ito et al., ‘Hasan kanzai nin no zenkan chūi gimu –

‘rigai kankei nin’gainen no paradaimu shifuto’(A

Bankruptcy Trustee’s Duty of Reasonable Care of a

Good Manager: The Paradigm Shift to the Notion of

‘Interested Parties’) (2011) 1930 Kinyūhōmu jijō(Finan-

cial Law Journal) 64–75; (4) Ichiro Nagaishi, ‘Hasan

kanzai nin to CSR’(Relationship between Bankruptcy

Trustees and CSR) (2005) 4(2) The Hitotsubashi Journal

of Law and International Studies 337. Nagaishi discusses a

bankruptcy trustee’s responsibility to society, particu-

larly for environmental issues, in relation to property

monetized as part of the trustee’s role; (5) Takeshi

Yasuki, ‘Tōsan shori jitsumu to bengoshi no rieki

sōhan’(Insolvency Procedure Practice and Bengoshi

Conflict of Interest) in Mitsumasa Tanabe (ed),

Imanaka Toshiaki Sensei koki kinen: saishin tōsanhōkaishahō

wo meguru jitsumu jōno mondai (Problems occurring in the Prac-

tice of Contemporary Bankruptcy Law and Corporate Law—

Memorial Publication on the Seventieth Birthday of Professor

Toshiaki Imanaka) (MinjihōKenkyūkai, Tokyo, 2005)

506–525.

3. Sato discusses some cases where the trustee sued the

mōshitate dairi’nin (petitioning representative) for

overcharging fees. See Tetsuo Sato, ‘Kanzai nin seido

ni miru nichi doku chūno hikaku’(A Comparison of

Japan, Germany and China through their Trustee Sys-

tems) (2014) 1988 Kinyūhōmu jijō(Financial Law Journal)

50, 60; and Tetsuo Sato, ‘Mushōkōihi’nin to sagai kōi

hi’nin no kankei: dairi’nin no hōshūhi’nin jiken kara

kangaeru’(Relationship between Denial of Gratuitous

Act and Denial of Fraudulent Act: From the Perspec-

tive of Denial of a Representative’s Remuneration) in

Saiguchi Chiharu Bengoshi (Moto Saikōsai Hanji)Kiju kinen

‘Tōsan no jissen’(Insolvency Practice: Memorial Publication on

the Seventy Seventh Birthday of Chiharu Saiguchi Esq. (former

High Court Judge)) (Yuhikaku, Tokyo, 2016) 261, 266–

269. See also Bengoshi chōkai shobun kensaku sentā

(Lawyer Disciplinary Measure Search Centre) website

at: <http://shyster.sakura.ne.jp/>. Bengoshi chōkai

shobun kensaku sentāwas created by Bengoshi jichi

wo kangaeru kai (Committee to consider the self-

regulation of bengoshi) and provides information on

disciplinary actions against bengoshi collected from the

official gazette and Jiyūto seigi, the official journal of

the Japan Federation of Bar Associations. It enables

users to search for bengoshi who have been disciplined

by entering either the name of the bengoshi,bengoshi

number, affiliated bar association, firm name, or year

or the type of discipline received. The search engine

is of limited use for the purposes of this article given

the detailed personal information required to search

for a disciplined bengoshi. A search cannot be made by

matter type such as ‘bankruptcy’.

Insolvency Practitioners in Japan 83

Copyright © 2017 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 26: 82–118 (2017)

DOI: 10.1002/iir

formal complaints against insolvency practitioners.

4

Further, whilst court involve-

ment in reviewing and setting remuneration does not necessarily lead to cheaper

costs for private parties globally, the case studies analysed in this article support

the view that court involvement has reduced costs in Japan. The case studies

are drawn from the key formal insolvency proceedings in Japan and encompass

the key categories of insolvency practitioners: bankruptcy and corporate

reorganisation trustees (kanzai nin) and civil rehabilitation supervisors (kantoku

i’in). In the vast majority of cases in Japan, a bengoshi performs these roles. Foreign

lawyers are not qualified to act in these roles domestically; although they may

become involved to the extent a cross-border matter has a Japanese connection.

5

Although Japan is not unique in its preference for a high degree of court inter-

vention in proceedings and practitioner supervision, this situation has implications

for its approach to new developments in the jurisdiction such as the emergence of

pre-petition practitioners who are not appointed by the courts and increasing

numbers of informal workouts. Despite the Japanese courts’important role in

insolvency proceedings, there are few publications dedicated to critiquing the

relationship between courts and insolvency practitioners in Japan.

6

Research for this article also involved interviewing four bengoshi with extensive

experience in Tokyo, three with more than 30 years’experience and one with

4. Other explanations include, for example, reluctance

of creditors to challenge (cultural reasons), lack of

avenues to challenge (institutional reasons) or the cost

involved (economic reasons). Further, where there has

been misconduct, it may not have been made public

and judges simply avoid appointing those people to

future matters as discussed below. This approach may

be counter-productive if there is a greater reliance on

pre-petition insolvency practitioners as people are un-

aware of what the courts know. Alternatively, the fact

that a practitioner is not receiving any court appoint-

ments may put more sophisticated consumers on notice

that something is amiss. See the discussion below in

relation to appointments also.

5. Japan has adopted a modified version of the

UNCITRAL Model Law. See Gaikoku tōsan shori

tetsuzuki no shōnin enjo ni kansuru hōritsu (Act on

Recognition of and Assistance for Foreign Insolvency

Proceedings, Act No 129, 2000). For an example of

co-operation and co-ordination amongst Japanese

and non-Japanese insolvency practitioners, see the

Spansion Japan case. Spansion was a wholly-owned

subsidiary of an American firm in the semiconductor

manufacturing industry, see Hideyuki Sakai, ‘Jigyō

saisei tetsuzuki no tenkai to shōraizō’(Development

and the Future of Business Reorganisation Proceed-

ings) in Hideki Matsushima et al. (eds), Atarashii jidai no

minji shihō(Civil Justice in a New Era) (Shōji hōmu,

Tokyo, 2011) 3, and English translation of this chapter,

Hideyuki Sakai et al.,‘A Revolution in Japanese Busi-

ness Restructuring Proceedings: An Insolvency Practi-

tioner’s Perspective of the Early 21st Century and

Future of Japanese Insolvency Law’(2018) American

Bankruptcy Law Journal (forthcoming).

6. See Sato, ‘Kanzai nin seido ni miru nichi doku chū

no hikaku’(n 3); Mutsuo Tahara, ‘Seiriya no jidai to

bengoshi no tōsan jitsumu –jigyōsaisei ni katsuyaku

suru bengoshi no ishizue no tame ni’(Restructuring

Era and Bengoshi Insolvency Practice: For the Sake

of the Cornerstone of Bengoshi practising Company

Restructuring) in Makoto Ito et al. (eds), Jidai wo riido

suru saisei ron (Debates on Rehabilitation which lead the Era)

(Shōji hōmu, Tokyo, 2013) 270–298. Tahara provides

a history of the Japanese trustee system and discusses its

current state. Tahara was a Supreme Court of Japan

justice (2006–2013) and member of the Insolvency

Law Committee of the Legislative Council in 1996;

and Tetsuo Sato, ‘Tōsan tetsuzuki ni okeru kikan no

saikōsei’(Reconfiguration of Institutions involved in

Insolvency Procedures) (1997) 1111 Jurisuto (Jurist)

187. For a recent critique, see Sato, ‘Mushōkōihi’nin

to sagai kōihi’nin no kankei: dairi’nin no hōshūhi’nin

jiken kara kangaeru’(n 3). In English, see, for example,

Jin Chun and Yuri Ide, ‘DIP and the Trustee in

Restructuring Proceedings: The Trend in Japan and

Indications for the Future in China’(2011) 8(6) Interna-

tional Corporate Rescue 399–403.

International Insolvency Review84

Copyright © 2017 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 26: 82–118 (2017)

DOI: 10.1002/iir