image: Digital Vision Photography
As expected, Japan Airlines formally filed for bankruptcy protection Tuesday in Tokyo District Court. The company's announcement of the filing listed 2.3 trillion yen ($25 billion) in liabilities, making it one of the largest restructurings in Japanese history. The company is set to shed almost 16,000 jobs, about a third of its workforce, in the process.
If JAL were an American company, this would be the point at which lawyers began descending on it in droves. Since it's not an American company, we turned to one of JAL's lawyers, Kazuhiro Yanagida, an associate at Tokyo's Nishimura & Asahi, for some insight into what happens now. Turns out things can be expected to play out a bit differently in Japan.
In a country where most top lawyers are generalists, Yanagida has an unusually deep background in restructuring. He worked in New York for both Cleary Gottlieb Steen & Hamilton and turnaround firm Alix Partners before clerking for U.S. Bankruptcy Judge Samuel Bufford in Los Angeles. In 2006 he and Bufford co-wrote an analysis of Japanese reorganization laws for the Cornell International Law Journal. Yanagida declined to discuss his or his firm's work for JAL but gave us a brief summary of what lies ahead for the insolvent airline.
Japan's Corporate Reorganization Act is modeled on U.S. Chapter 11. How will the upcoming proceeding differ from large bankruptcies in America?
The big difference is the role of the trustees. A Chapter 11 trustee is not always appointed and, even if they are, their role is more as a monitor of the process. In Japan, the court will usually appoint two trustees -- one on the business side and one on the legal side. The trustees have a lot of control and power over the case.
In a major U.S. bankruptcy, the debtor's counsel usually has the biggest role, often followed by the counsel for the creditors committee. That's not the case in Japan?
In Japan the legal trustee will handle many tasks handled by the debtor's counsel in America. For instance, if some parts of the company are going to be sold, that would be handled by the trustee. The debtor's counsel role usually disappears after the filing for bankruptcy. The trustee is supposed to be independent and not influenced by the company.
Creditors in Japan don't usually have too many meetings and a committee is not usually formed. Major creditors do hire lawyers but not to file proofs of claim. Often they just observe the proceedings.
Are there any leading candidates to be appointed the legal trustee?
Eiji Katayama of Abe Ikubo & Katayama has been representing [Enterprise Turnaround Initiative Corp. (ETIC), the government-funded agency in charge of JAL's reorganization]. He could be appointed trustee. (Katayama, who did not respond to interview requests last week, was in fact appointed trustee Tuesday. ETIC itself was also appointed the other trustee.)
The government has taken a very active role in this case. What effect has that had?
There are a lot of politics. The government is especially committed to the idea of keeping the airline running. So you can expect to see trade creditors to be paid in full. (ETIC and the Japanese government on Tuesday pledged some 900 billion yen, or roughly $9.9 billion, to keep the airline in operation.)
Are other creditors likely to complain?
Not really. It is good for them too if the company is still running.
This is a very big case. In the U.S. law firms would be eagerly anticipating big fees.
There could be a big fee in this case, but not compared to the U.S. In Japan, legal fees are not generally as lucrative as the U.S. Also, hourly billing is not popular in Japan. Especially in insolvency cases, we tend to use a success-fee model. But that also can't be negotiated too high. The court tends to disagree with high fees.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
