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IRCJ Industrial Revitalization Corporation of Japan

The World Bank Conference: Corporate Restructuring : International Best Practices March 22-24, 2004, Washington, D.C. IRCJ Industrial Revitalization Corporation of Japan. Restructuring Approaches Used in Japan. Professor Dr. Shinjiro Takagi

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IRCJ Industrial Revitalization Corporation of Japan

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  1. The World Bank Conference: Corporate Restructuring : International Best Practices March 22-24, 2004, Washington, D.C. IRCJ IndustrialRevitalization Corporation of Japan Restructuring Approaches Used in Japan Professor Dr. Shinjiro Takagi Chairman Industrial Revitalization Commission

  2. IRCJ Introduction • Statutory Reorganization Proceedings • The Guideline Regarding Out Of Court Workout • Industrial Revitalization Corporation of Japan (IRCJ)

  3. IRCJ 1. Statutory Reorganization Proceedings • 1922 : Composition Law • 1938 : Corporate Arrangement Proceeding • Under Commercial Code (Rarely used now) • 1951 : Corporate Reorganization Law • 1967 : Corporate Reorganization Law reformed • 1999 : Civil Rehabilitation Law (Popular) • 2003 : Corporate Reorganization Reform Law (Popular)

  4. IRCJ 1. Statutory Reorganization Proceedings • Civil Rehabilitation Proceeding - Mainly used for small and mid sized enterprises（SMEs） - DIP in principle - Secured right cannot be impaired without consent of each secured creditor • Corporate Reorganization Proceeding - Mainly used for bigger corporations - Trustee (exception: Court can appoint an incumbent manager as an trustee) - Secured right can be changed by reorganization plan accepted by majority resolution - Usually 100% dilution of equity (wiping out shareholders’ rights)

  5. IRCJ 1. Statutory Reorganization Proceedings • Japan’s unique culture - Wide use of promissory notes - Main bank group system - Vestige of stigma

  6. 2003 The Guideline Regarding Out of Court Workout was established by National Bankers Association and other relevant organizations Workout between a debtor and financial institutions not including trade creditors - Filing proposed plans with a main bank by a debtor - Notice of standstill to financial institutions - 1st creditors’ meeting within 2 weeks after the notice Unanimous consent to the standstill Set standstill period (maximum 3 months) Appoint professional advisors Appoint creditors’ committee (optional) Approve DIP finances IRCJ 2. The Guideline Regarding Out Of Court Workout

  7. Advisors’ report regarding fairness and feasibility of the plan Solicitation to accept the plan 2nd creditors’ meeting Unanimous consents to the plan Contents of the plan DES and/or partial debts forgiveness Eliminate negative net worth within 3 years Recover profitability within 3 years Equity dilution Replacement of the managers IRCJ 2. The Guideline Regarding Out Of Court Workout

  8. 1996 - The Resolution & Collection Corporation (RCC) was established April 2003 - The Industrial Revitalization Corporation Of Japan (IRCJ) was established The goal of the IRCJ is to reduce NPLs by half (approximately 4%) before March, 2005, revitalizing troubled corporations at the same time IRCJ 3. Industrial Revitalization Corporation of Japan

  9. 3. Industrial Revitalization Corporation of Japan : Scheme IRCJ Exit Entry I R C J RevivedCompany Banks Indebted Company New Money RestructuringPlan Evaluation Main Bank Strategic Sponsors Non-Main Banks Non-Main Banks Private Equity Fund Non-Main Banks Non-Main Banks Loan Assets Purchase Sale Investment Banks DES Banks Please refer to the brochure for the details.

  10. Executives and members of the board of directors and IRCJ Commission are under the approval of the ministers in charge. The IRCJ can raise money as much as 10trillion Japanese Yenwith the government guarantee to purchase loans and infuse new money. The IRCJ must exit within three years after purchasing the loans. Total lifetime of the IRCJ is limited to five years. Sole shareholder is the Deposit Insurance Corporation (DIC). All the financial institutions in Japan are the capital contributors. 3. Industrial Revitalization Corporation of Japan : Feature IRCJ

  11. ■Other matters related to the IRCJ Decentralized Asset Management Corporation which are subsidiaries of banks, were set up after the starting of the IRCJ Consulting Committees to revitalize SMEs were established in every region all over Japan after the starting of the IRCJ Conversion to statutory reorganization proceedings - Treatment of trade creditors (equality rule) Human Resources Restructuring advisors and turnaround managers IRCJ 3. Industrial Revitalization Corporation of Japan

  12. Chart 1 Balance of Non- and Poor-Performing Loansin Banks across the Nation Trillion Yen (from the Nikkei Paper ’03/12/27)

  13. Chart 2 Balance and Rate of Non- and Poor-Performing Loans among Major Banks Trillion Yen (%) 7.2% 20.2 (from White Paper on the Economy and Public Finance 2003)

  14. Chart 3 Balance of Non- and Poor-Performing Loans Trillion Yen (from the Nikkei Paper ’03/12/30)

  15. Chart 4 Financial Support for Major Construction Companies in the Past 100 million Yen (from the Nikkei Sangyo Paper ’03/11/28)

  16. IRCJ Industrial Revitalization Corporation of Japan Inquiries: Corporate Planning Office +81-3-6212-6400 (Switchboard) Home Page: www.ircj.co.jp

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