The Act on Financial Debt Adjustment Procedures for Enterprises to Facilitate Business Recovery, commonly referred to as the Early Business Recovery Act (the "Act"), was enacted in June 2025. It is scheduled to come into force by mid-December 2026, following the development of the relevant ministerial ordinances and related rules. The Act enables the restructuring of an enterprise’s financial indebtedness through a majority vote of financial creditors and court sanction.

In Japan, out-of-court restructuring proceedings, which are non-public consent-based processes such as business turnaround ADR and under which restructuring of financial liabilities is effected with the unanimous consent of all financial creditors without court involvement, have been widely used for corporate financial restructurings for more than two decades. However, the requirement of unanimous consent in out-of-court restructuring proceedings presents a serious issue: a single dissenting creditor, regardless of claim size, can block the rescue plan. The Act seeks to address this longstanding issue by introducing a court-sanctioned cramdown mechanism based on a majority vote into the out-of-court restructuring context, and is expected to support business rehabilitation and broader industrial transformation in Japan.

The key features of the procedure are as follows.

• The cramdown applies only to financial creditors holding financial claims; trade creditors and tax creditors are excluded.
• Only the unsecured portion of financial creditors’ claims is subject to cramdown; secured portions remain unaffected. Consequently, secured portions are excluded from the calculation of the total voting amount; no voting rights are granted in respect of the secured portion. However, it may not always be straightforward to distinguish the secured portion from the unsecured portion. Therefore, it is contemplated that the debtor will seek to reach an agreement with the relevant secured creditor on an individual basis regarding the amount of the secured portion. In this respect, the procedure differs materially from existing out-of-court restructuring proceedings, where voting is typically conducted on a one-creditor, one-vote basis.
• The Act requires the proceedings to be supervised by a designated confirmation and review organization, namely a neutral third-party organization designated by the Ministry of Economy, Trade and Industry. The organization appoints lawyers, accountants and other professionals with substantial expertise in business restructuring as supervisors.
• Where all relevant financial creditors consent to the rescue plan, including a debt haircut or rescheduling, it becomes effective immediately without court sanction. Even where unanimous consent is not obtained, the cramdown under the rescue plan will, in principle, become effective upon court sanction if financial creditors holding at least 75% of the total voting amount vote in favour of it. Such court sanction may be appealed.

As for its potential use, the procedure may be selected from the outset, or a case may be transitioned to this procedure where an existing out-of-court restructuring proceeding, such as business turnaround ADR, cannot be completed in the absence of unanimous consent. Where the procedure is used from the outset, it is expected to take approximately six months to one year from commencement to court sanction.

This procedure may be regarded as a third option, positioned between formal insolvency proceedings, such as civil rehabilitation proceedings, and out-of-court restructuring proceedings. Its practical development will be closely watched.