JAPAN LAWYERS GUIDE 2018/19
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39JAPAN LAWYERS GUIDE 2018/19Arclesby the Japanese Diet in June 2014 and came into eect in May 2015 (the “2015 Amendment”). ereafter, the Ministry of Justice has continued discussions of a possible additional amendment of the Companies Act (the “Addi-tional Amendment”), and a draft plan of the Additional Amendment was published in February 2018 in order to start the process of public comments on such draft. While the 2015 Amendment focused on certain corpo-rate governance issues, including an option to introduce a new corporate governance system that includes an au-dit and supervisory committee (dened as “kansa-tou iinkai secchi kaisha” in the Amendment) and the intro-duction of double derivative actions in certain circum-stances, there were some major reforms that have directly impacted M&A practice including, among others: (a) regulation on the issuance of shares that results in creat-ing controlling shareholders; and (b) minority squeeze-out procedures. Regarding (a), while the Companies Act originally required only board approval for the issu-ance of new shares (unless it was deemed a discounted issuance), the 2015 Amendment obliges any company which plans to issue new shares to send written notice to all shareholders, or to make a public notice of its in-tention to issue the shares (unless it submits a security registration statement separately required under the Fi-nancial Instruments and Exchange Act), if the acquirer of the shares will own a majority of the voting rights as a result of the share issuance. Regarding (b) above, the 2015 Amendment introduced a new minority squeeze-out procedure which became frequently employed after the 2015 Amendment took eect. If a controlling share-holder directly or indirectly owns 90% or more of the total voting rights of the company after the completion of a tender oer, that shareholder is able to require the remaining shareholders to sell their shares without the need for shareholder approval or a court order, subject to the approval of the board of the target company. Dis-senting shareholders have the right to seek an injunction to prevent such a purchase if it is illegal or extremely unjust. Dissenting shareholders also have an appraisal right. Other reforms in the 2015 Amendments also had an impact on M&A practices in Japan (e.g., shareholder remedies which include the ability to seek an injunction of mergers and other reorganisations).e Additional Amendment also focuses on corporate governance issues, such as the procedures for sharehold-ers’ meetings, requirements of appointment of outside directors, and incentive and remuneration of the direc-tors. ese possible amendments may have an impact on M&A practices and therefore we should keep an eye on the discussions of the Additional Amendment in 2018 and onward.Developments in corporate governanceRecently, corporate governance has become a hot issue in Japan and we have seen important developments in this area. As described above, the Amendment of the Companies Act contains certain corporate governance developments including the introduction of an audit and supervisory committee. In addition, in February 2014, the Japanese Financial Services Agency (FSA) introduced a Japanese version of the “Stewardship Code”, which is entitled “Principles for Responsible Institutional Inves-tors”. e FSA announced that, as of February 2018, 219 institutional investors have adopted the stewardship code as a result of such introduction by the FSA. is de-velopment is aecting the relationship of Japanese com-panies with their institutional shareholders, which is also aecting M&A practices in Japan.Furthermore, in May 2015, the Tokyo Stock Exchange (“TSE”) adopted the Corporate Governance Code (the “Code”), entitled “Japan’s Corporate Governance Code − Seeking Sustainable Corporate Growth and Increased Corporate Value over the Mid- to Long-term”, which was included in its listing rules. e adoption of the code had a signicant impact on corporate governance system and M&A practices in Japan. e Code was a product of the joint eorts of the FSA and the TSE, which in August 2014 organised the “Council of Experts Concerning the Corporate Governance Code”. e Code is intended to establish fundamental principles for eective corporate governance for listed companies in Japan. It includes not only important principles on corporate governance, such as a requirement for at least two independent directors, but also principles relating to M&A, such as principles relating to anti-takeover measures, capital policies that could result in a change of control or in signicant dilu-tion (e.g., management buyouts or share oerings), and cross-shareholdings. Since the Code is based on the no-tion that companies need proper corporate governance

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