Japan eases out-of-court debt settlement requirements

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The government is considering measures to make it easier for businesses and lenders to settle their debts out of court, including relaxing the requirements for such settlements.

The government hopes the measures will help facilitate economic recovery and efforts to improve productivity.

Meanwhile, the banking industry is worried about a possible increase in pressure to write off debts.

The balance of loans granted to businesses stood at 622 trillion yen at the end of 2020, up 52 trillion yen from a year earlier.

Despite the new coronavirus crisis, Japanese business bankruptcies remain at low levels thanks to government-funded business financial assistance such as interest-free and unsecured loans.

As corporate sector debts increase, corporate failures and bank over-indebtedness become greater risks to the economy.

To deal with the problem, the government included measures to facilitate the use of alternative debt settlement procedures in an action plan of its growth strategy adopted last week.

When settling debts accumulated in distressed companies, it is easier to maintain their enterprise value and move quickly to rehabilitation if the debts are settled out of court than through civil rehabilitation or other legal proceedings. .

Currently, around 1,000 out-of-court debt settlement cases are handled annually by the Small and Medium Business Revitalization Boards.

Once the COVID-19 crisis is over, movements to liquidate and rehabilitate struggling businesses are expected to increase. Measures to facilitate debt consolidation will be even more important.

The government aims to design drastic debt settlement facilitation measures mainly for large companies.

For small businesses, the government is considering asking the banking industry to revise its debt consolidation guidelines to ease out-of-court settlement requirements, including an extension of a grace period to eliminate equity. negative at five years compared to the current three years.

The industry is concerned that an easing of requirements is likely to result in an increase in loan amounts that lenders have to write off.

Such a measure “goes against” efforts to reduce the impact of the coronavirus crisis on the economy, with which the industry is cooperating by joining government-backed financial aid programs, according to a source Of the industry.

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