Summary
On September 18th, Aiful announced plans to negotiate changes in payment schedules with creditors as part of a broader operational restructuring. The company hopes to take advantage of provisions in the recently revised Special Law for Industrial Revitalization and Restructuring of Industrial Activities to restructure operations by merging subsidiaries, closing branched and slashing payrolls. The law provides for tax incentives and protection from creditors, but it is no panacea.
Analysis
The Special Law for Industrial Revitalization and Restructuring of Industrial Activity was originally passed in 2000 as temporary, 3-year measure to encourage corporate restructuring and protect small businesses from economic shocks in the wake of the 1997 Asian Financial Crisis. The law provides tax incentives and limited creditor protection to businesses that choose to undertake voluntary corporate and/or operational restructuring measures designed to boost competitiveness and productivity, subject to the Ministerial approval.
Aiful has begun preliminary discussions with the Japan Association of Turnaround Professionals regarding the possibility of Alternative Dispute Resolution aimed at gaining support from creditors needed to formally apply for support under the Special Law. At present, Aiful is seeking only a revision of debt repayment schedules with no element or debt forgiveness or conversion (debt-to-equity swap, etc.). The company presumably took in order to delay repayment of bank loans and retirement of corporate paper due to the high cost and difficulty of procuring new funds.
Even should any application for Operational Restructuring ultimately by approved by Hon. Shizuka Kamei, State Minister for Postal and Financial Services, the law is unlikely to provide protection against additional claims for refund of overpaid interest. Rather, the focus would be on the much needed merger, integration or disposal of subsidiaries such as Life Card, Maruto and Cities. Recent unsympathetic comments from the Minister raise doubt as to whether the underlying application for Operational Restructuring would win approval, leaving some to wonder whether the move isn't just a shifty sleight-of-hand intended to buy time by pressuring creditors to maintain existing credit lines.
Daniel Lintz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
