JAPAN LAWYERS GUIDE 2018/19
41JAPAN LAWYERS GUIDE 2018/19Arclesoer procedure that the squeeze-out price would be the same as the tender oer price. While the J:COM ruling should provide much more predictability in this type of transaction, there are still certain open issues, including: (i) any other factors that would be regarded as a “generally accepted fair process”; (ii) the scope of application of this Supreme Court de-cision; and (iii) how the court would determine the squeeze-out price in cases where it nds that “generally accepted fair procedures” were not followed. In this regard, there was a court decision at the Osaka District Court in January 2017. is decision imple-mented the abovementioned framework as the Supreme Court proposed in the J:COM case, but the court deter-mined that the procedures were not enough to determine the fairness of the price, and it actually reviewed the price itself. As such, although it is still difcult to predict how this J:COM ruling will be implemented in subsequent court decisions, it will likely have a signicant impact on Japanese M&A practices, making it more important to consider carefully the factors that would be regarded as “generally accepted fair procedures” in each transaction. Not only an independent committee as described in the J:COM case, but other approaches, including setting the so-called “majority of minority condition”, may be more commonly taken in this type of transaction. It will be important to follow how Japanese M&A practices are actually aected in the coming years.Court decision regarding the issuance of new shares in case of dispute over control of companyIn July 2017, there was a Tokyo High Court decision regarding the public oering of new shares in a situation involving a dispute over control of a company among existing shareholders. In this case, Idemitsu Kosan Co., Ltd (“Idemitsu”), the second-largest petroleum company in Japan, conducted a public oering of its shares of common stock. ere-after, the founding family of Idemitsu led a petition to enjoin such issuance of shares. e founding family directly and indirectly owned more than one-third of Idemitsu’s voting rights, which enabled the founding family to veto Idemitsu’s material corporate actions such as mergers or other corporate re-organisations. Actual-ly, the founding family was against the combination of Idemitsu and Showa Shell Sekiyu K.K proposed by the incumbent management. e founding family led the petition because issuance of the new shares would cause the shareholding ratio of the founding family to fall be-low one-third, and they would lose their veto right over material corporate actions.Over the last decades, courts have developed the “pri-mary-purpose” (shuyo mokuteki) test for this type of situation. Under the primary-purpose test, the court will determine whether the primary purpose of the issuance of new shares is to dilute the shareholding of a specic shareholder and to maintain control of the incumbent management and shareholders. In the Idemitsu case, the court also used the primary-purpose test. e court ruled that the issuance of shares by Idemitsu was not for the primary purpose of diluting the shareholding of the founding family because, among others: (a) this was a public oering of the shares to general subscribers rather than an oering of shares to a specic third party, and therefore, it was less likely that the current management could control who would be the new shareholders and the opinions of such new shareholders; and (b) Idemitsu actually needed new money through this issuance of new shares in order to renance the bridge loan which would be due within a few months.ere have been some arguments regarding the Idemit-su case, particularly since it seems the court easily con-cluded the necessity of nancing without a thorough review. However, given the court’s conclusion that a public oering of shares may be more acceptable from the perspectives of the “primary-purpose” rule, this case may have an impact on Japanese M&A practices going forward, especially in a situation involving a dispute over control of a company.Amendment of the Foreign Exchange and Foreign Trade Acte Foreign Exchange and Foreign Trade Act (the “For-eign Exchange Act”) was amended in 2017 and it took eect on October 1, 2017. e Foreign Exchange Act regulates foreign transactions, including inbound and outbound M&A transactions. e purpose of the amend-ment of the Foreign Exchange Act was, among others, to strengthen the regulations of cross-border transactions including M&A transactions.