How to File Proofs of Claims in Corporate Reorganization Proceedings

Below please find an explanation of proofs of claims in corporate reorganization proceedings (Kaishakosei-hou) in Japan.

1 General Unsecured Claims

1-1 Overview

General unsecured claims which have arisen from a cause that occurred before the commencement of corporate reorganization proceedings are defined as General Unsecured Claims under Article 2(8) of the Corporate Reorganization Act (“Act”). A creditor with General Unsecured Claims is bestowed a voting right according to the amount specified in each claims. Here, “before the commencement of corporate reorganization proceedings” means until the day immediately prior to the commencement of corporate reorganization proceedings.

General Unsecured Claims shall be paid pursuant to the confirmed reorganization plan, on the condition that a creditor files its proofs of claims, the contents are approved by the court appointed trustee (“Trustee”), and no objection is made by any other creditors during the period of investigation.

1-2 General Rules of Proofs of Claims

In order for a general unsecured creditor to participate in corporate reorganization proceedings, the creditor must file proofs of claims within a period specified by the competent court upon making the order of commencement of the proceedings (Article 138(1) of the Act).

The content of proofs of claims shall be as follows:
(1) The amount and the cause of each general unsecured claim
(2) If the claim is a claim with general statutory lien or a consensually-subordinated claim, a statement to that effect
(3) The amount of the voting rights
(4) The following matters specified by the Rules of the Supreme Court (Article 36 of the Rule)
i The names and the addresses of the creditor and its attorney
ii The place of service
iii If the claim is subject to any enforceable title of obligation or final judgment, a statement to that effect
iv If the claim is subject to any pending action, the name of the court, the names of the parties, and the title of the case

With regard to (1) the amount and the cause of each general unsecured claim, creditors are required to specify the type, the amount, the cause of and the details of the claims. In many cases the Trustee will approve or disapprove the claims based on the above information. In cases where the Trustee cannot accept the claim in question through its investigation, the law allows the Trustee to request the creditor to submit evidential documents.

Please note that if a creditor fails to file its proofs of claims, the creditor will be prohibited from participating in the proceedings, and will be discharged from those claims when the court makes an order of confirmation of the reorganization plan (Article 204 of the Act).

1-3 General Unsecured Claims without Voting Rights

The following claims, which have arisen based on general unsecured claims after the commencement of corporate reorganization proceedings, shall also be treated as General Unsecured Claims (Article 2(8) of the Act).
(1) Claims for interest arising after the commencement of corporate reorganization proceedings
(2) Claims for damages or penalty for a default arising after the commencement of corporate reorganization proceedings
(3) Claims for expenses for participation in corporate reorganization proceedings
(4) Claims for damages of the counter party in cases where both the debtor and the counter party under a bilateral contract have not yet completely performed their obligations by the time of commencement of corporate reorganization proceedings and the Trustee chooses to cancel the contract

However, a creditor of these claims is not bestowed voting rights over these claims, and in many reorganization plans, these claims are discharged at the full amount.

2 Secured Claims

2-1 Overview

Any claim that is secured by (a) collateral(s) of the reorganizing company at the time of the commencement of the reorganization proceedings, insofar as it is secured by current value of the collateral, is defined as Secured Claim under Article 2(10) of the Act. Similar to creditors with general unsecured claims, creditors with secured claims are bestowed a voting right according to the amount specified in each claims.

2-2 Filing of Proofs of Claims

In order for a secured creditor to participate in the proceedings, the creditor must file proofs of claims within a period specified by the competent court upon making the order of commencement of the proceedings.

The content of proofs of claims shall be as follows (Article 138(2) of the Act):
(1) The amount and the cause of each secured claim
(2) The property that is the subject matter of the security interest and its value
(3) The amount of the voting rights
(4) The matters specified by the Rules of the Supreme Court (Article 36 of the Rule) (See 1-2 of this document)

With regard to the amount of secured claims, a creditor shall file the amount written as the value of the property that is the subject matter of the security interest as a Secured Claim, and the portion in excess of the said amount shall be filed as a General Unsecured Claim.

2-3 Approval of Reorganization Plan

Similar to General Unsecured Claims, Secured Claims shall be paid pursuant to the confirmed reorganization plan.
However, the requirements for the approval of the proposed reorganization plan differ with each class (General Unsecured Claims or Secured Claims). With regard to secured creditors, in order to extend the due date of the payment of Secured Claims, the consent of persons who hold voting rights that account for not less than two-thirds of the total voting rights held by secured claimholders is required (Article 196(5)II of the Act).
Also, in order to write off secured claims to some extent, the consent of persons who hold voting rights that account for not less than three-quarters of the total voting rights held by secured claimholders is required. (Whereas with regard unsecured creditors, the reorganization plan will be approved with the consent of persons who hold voting rights that account for more than one half of the total voting rights held by unsecured claim holders.)

3 Administrative Expenses

3-1 Overview

Administrative Expenses shall be given priority over General Unsecured Claims and Secured Claims (Article 132 of the Act).

The following claims are typical Administrative Expenses (Article 127-131 of the Act):
(1) Expenses for court proceedings performed for the common interest of general unsecured creditors and secured creditors
(2) Expenses for the administration of debtor’s business and disposition of its property after the commencement of rehabilitation proceedings
(3) Expenses that should be paid in the interest of the debtor and that have arisen after the commencement of corporate reorganization proceedings
(4) Claims held by a counter party of the Trustee to a bilateral contract under which the obligations of both parties have not yet been completed by the time of the commencement of corporate reorganization proceedings, and which the Trustee chooses to continue (Article 49(1) of the Act)
(5) Taxes withheld by the debtor, due date of which has not yet arrived
(6) Considerable part of claims for latest salary or retirement allowance of employees
(7) Expenses and remuneration for bond administrator, etc. on certain conditions

Under the Act, Administrative Expenses may be paid at any time without going through the confirmed corporate reorganization plan and shall be paid in preference to General Unsecured Claims and Secured Claims (Article 132 of the Act).

3-2 Conditional Filing for Administrative Expenses

A creditor does not need to file Administrative Expenses. As mentioned above, Administrative Expenses may be paid at any time without going through the confirmed corporate reorganization plan and shall be paid in preference to General Unsecured Claims and Secured Claims (Article 132 of the Act).
However, the Trustee may argue that the claims that a creditor considers to be Administrative Expenses are merely General Unsecured Claims. A creditor may make a conditional filing of those claims that it itself regards as Administrative Expenses in the case that the Trustee does not treat them as Administrative Expenses.

4 Investigation of the Proofs of Claims

The proofs of claims should be filed no later than the bar date that the court designates in the commencement order.
The Trustee will investigate the filed claims and submit the statement of approval or disapproval by the last date of the investigation period, which the court also designates in the commencement order.
If the Trustee approves your claims and no objection is made during the investigation period, your claims will be fixed (Article 150 of the Act). If the Trustee disapproves or any objection is made, you may, at your discretion, file a petition for assessment to the court in order to determine the content of the claims in question within one month after the last day of the investigation period (Article 151 of the Act).