"Collection Action" vs. "Assignment Order": Two Ways to Collect Seized Monetary Claims in Japan

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

Successfully obtaining a seizure order (sashiosae meirei, 差押命令) against a monetary claim that your debtor holds against a third party (the garnishee) is a significant step in the Japanese civil execution process. However, the seizure order itself doesn't automatically transfer funds to your account. The next crucial phase is to actually realize or collect on that seized claim. Japanese law primarily offers two distinct methods for an executing creditor to achieve this: exercising the Right of Collection (Toritateken, 取立権), which may necessitate a Collection Action (Toritate Soshō, 取立訴訟), or seeking an Assignment Order (Tempu Meirei, 転付命令) from the court. Each path has its own procedures, legal effects, advantages, and strategic implications.

Method 1: The Right of Collection (Toritateken) and the Collection Action (Toritate Soshō)

This is often considered the standard or default method for realizing a seized monetary claim.

A. The Right of Collection (Article 155, Civil Execution Act)

  • What is it? Once a seizure order has been served on the original debtor for one week (this waiting period allows the debtor an opportunity to take actions such as proving the debt has been paid, thereby potentially stopping the execution), the executing creditor automatically acquires the legal right to directly demand payment of the seized monetary claim from the third-party debtor (garnishee).
  • Scope of Collection: The creditor can demand and receive payment from the third-party debtor up to the amount of their own enforceable claim against the original debtor, plus accrued interest and the costs of execution.
  • Creditor Acts as a Collector, Not Owner: It's important to understand that under this method, the executing creditor does not become the owner of the seized claim. They are merely vested with the statutory authority to collect it on behalf of or in lieu of the original debtor, but only to the extent necessary to satisfy their own judgment. Any surplus collected beyond the creditor's entitlement would belong to the original debtor (or be available for other creditors).

B. The Collection Action (Toritate Soshō - Article 157, Civil Execution Act)

  • When is a Collection Action Necessary? If the third-party debtor, despite the executing creditor's demand based on their Right of Collection, fails or refuses to make the payment voluntarily, the creditor must then resort to a Collection Action.
  • Initiating the Lawsuit: The executing creditor files a lawsuit in their own name against the third-party debtor. The original debtor is generally not a party to this specific collection lawsuit, although they must be notified of its filing (Article 157, paragraph 2). This notification allows the original debtor to intervene in the lawsuit if they wish to protect their own interests (e.g., if they dispute the validity of the third-party debtor's defenses).
  • Subject Matter of the Lawsuit: The legal claim pursued in a Collection Action is the seized claim itself—that is, the debt owed by the third-party debtor to the original debtor. The executing creditor is, in effect, stepping into the shoes of the original debtor to enforce that specific monetary obligation against the third-party debtor.
  • Third-Party Debtor's Defenses: The third-party debtor can raise any defenses in the Collection Action that they could have validly raised against the original debtor had the original debtor sued them directly for payment. Such defenses might include, for example:
    • The debt was already paid to the original debtor before the seizure order was served.
    • The underlying contract giving rise to the debt was invalid or has been rescinded.
    • The third-party debtor has a valid right of set-off against the original debtor.
    • The claim has become time-barred (prescribed).
  • Judgment and Subsequent Enforcement: If the executing creditor is successful in the Collection Action, the court will issue a judgment ordering the third-party debtor to pay the specified sum to the executing creditor. If the third-party debtor still fails to pay, this new judgment against them can then be enforced through compulsory execution against the third-party debtor's own assets.
  • Example (Concept from Case 33): Imagine Creditor A seizes Debtor B's salary from Employer C (the third-party debtor). If Employer C, after being served with the seizure order and a demand from Creditor A, refuses to remit the legally seizable portion of B's wages, Creditor A can file a Collection Action against Employer C to compel payment.

C. Advantages and Disadvantages of the Collection Route

  • Advantages:
    • Relative Safety Regarding Underlying Debt: The executing creditor's original claim against their own debtor is only considered satisfied to the extent that funds are actually collected from the third-party debtor. If the seized claim turns out to be uncollectible (e.g., the third-party debtor is insolvent or successfully raises defenses), the creditor's original claim against their primary debtor remains largely intact (less any costs incurred).
    • Accommodation of Competing Creditors: If other creditors also seize the same claim from the same third-party debtor, and the third-party debtor deposits the funds with a legal affairs bureau (kyōtaku) due to these competing seizures, the funds will be distributed among all entitled creditors on a pro-rata basis (unless there are statutory priorities). The collection route naturally fits into this pro-rata distribution scheme.
  • Disadvantages:
    • Potentially Time-Consuming and Costly: If the third-party debtor disputes the claim or refuses to pay, a Collection Action becomes necessary, which involves further legal proceedings, time, and expense.
    • No Guaranteed Full Recovery: If there are competing creditors and insufficient funds, the seizing creditor may only receive a partial payment after pro-rata distribution.
    • Third-Party Debtor's Defenses: The creditor is subject to any defenses the third-party debtor may have against the original debtor.

Method 2: The Assignment Order (Tempu Meirei)

This method offers a more direct, and potentially faster, way for a creditor to take over the seized claim, but it comes with distinct risks.

A. Definition and Purpose (Article 159, Civil Execution Act)

  • What is it? An Assignment Order is a court order issued upon the petition of the executing creditor. This order legally transfers the seized monetary claim (or a specified portion of it) from the original debtor to the executing creditor. The transfer is made in lieu of payment of the executing creditor's own claim against the original debtor.
  • Key Effect: It effectively "assigns" the debt owed by the third-party debtor to the executing creditor, as if a contractual assignment had taken place. The assigned claim is typically valued at its face value (kenmengaku, 券面額).

B. Requirements for Issuance

The court will only issue an Assignment Order if specific conditions are met:

  1. The underlying seizure order must have been served on the third-party debtor for at least one week (paralleling the waiting period for the Right of Collection).
  2. Crucially, at the time the Assignment Order is served on the third-party debtor, no other creditor must have already seized the same monetary claim, nor demanded distribution from it, nor effected a provisional attachment against it. This "no competing claims" rule is fundamental. An Assignment Order is intended to give the petitioning creditor an exclusive right to the seized claim; if other creditors have already staked a claim through seizure or a formal demand for distribution, an Assignment Order cannot be issued.
  3. The seized claim must be a monetary claim with a determinable face value.

C. Legal Effects of an Assignment Order (Article 160, Civil Execution Act)

The legal consequences of a finalized Assignment Order are significant:

  1. Transfer of the Claim: The seized monetary claim (or the portion specified in the order) is legally transferred from the original debtor to the executing creditor. The creditor now becomes the direct obligee of the third-party debtor for the assigned claim.
  2. Deemed Payment (Bensai Gisei, 弁済擬制): This is the most critical effect. The executing creditor's original claim against their own debtor is deemed to have been satisfied up to the face value of the claim assigned by the tempu meirei. This "deemed payment" occurs at the moment the Assignment Order is served on the third-party debtor and becomes effective.
    • The Risk: The satisfaction of the creditor's original claim occurs regardless of whether the creditor actually succeeds in collecting the assigned claim from the third-party debtor. If the third-party debtor turns out to be insolvent, or has valid defenses and refuses to pay the assigned claim, the executing creditor may recover nothing (or less than the face value) from them. Nevertheless, their original claim against their primary debtor is still considered satisfied by the full face value of the assigned claim. The entire risk of the assigned claim's uncollectibility shifts to the executing creditor.
  3. Third-Party Debtor's Defenses: The third-party debtor can still assert against the assignee creditor (the original executing creditor) any defenses they had against the original debtor (the original creditor of the seized claim) at the time the initial seizure order was served on them. This was affirmed by the Supreme Court of Japan in a decision on March 30, 1971. For example, if the third-party debtor had already paid part of the debt to the original debtor before the seizure, they can assert this partial payment against the assignee creditor.
  • Example (Concept from Case 34): Creditor X seizes rent payments owed by Tenant Y (third-party debtor) to Landlord Z (Creditor X's debtor). If X obtains an Assignment Order for these rent payments, Y is now obligated to pay the future rent (up to the assigned amount) directly to X. Simultaneously, X's original claim against Z is deemed reduced by the face value of the assigned future rent, even if Y later defaults on rent payments to X.

D. Advantages and Disadvantages of the Assignment Order Route

  • Advantages:
    • Potential Speed and Exclusivity: If the conditions are met (especially the "no competing claims" rule), an Assignment Order can be a relatively quick way to effectively secure the seized claim. It gives the creditor an exclusive right to that claim, bypassing potential pro-rata sharing with other general creditors who might later attempt to seize it.
    • Satisfaction at Face Value: The creditor's original claim is deemed satisfied at the full face value of the assigned claim, which can be beneficial if that face value is substantial and the third-party debtor is creditworthy.
  • Disadvantages:
    • Significant Risk of Non-Collection: This is the major drawback. The creditor assumes the entire risk of the third-party debtor's insolvency or their ability to assert valid defenses. If the assigned claim proves uncollectible, the creditor has lost recourse against their original debtor for that amount.
    • "No Competing Claims" Prerequisite: The strict requirement that no other seizures or demands for distribution are in place at the time of service on the third-party debtor often limits its availability in practice, especially if a debtor has multiple creditors.

Strategic Choice: Collection Action or Assignment Order?

The decision for an executing creditor on whether to pursue the collection route or seek an Assignment Order is a critical strategic one, often involving a careful risk-benefit analysis based on the specific circumstances of the case. Key factors to consider include:

  1. Creditworthiness and Reliability of the Third-Party Debtor:
    • If the third-party debtor is highly creditworthy and unlikely to default or raise defenses (e.g., a major financial institution, a government entity, a financially stable blue-chip company), an Assignment Order becomes an attractive option due to its speed and the exclusivity it offers. The risk of non-payment from such a garnishee is low.
  2. Existence and Likelihood of Competing Creditors:
    • If other creditors have already seized the same claim or are highly likely to do so imminently, an Assignment Order will likely be unobtainable due to the "no competing claims" prerequisite. In such scenarios, proceeding with the Right of Collection (which allows for eventual pro-rata distribution if the third-party debtor deposits the funds) may be the only viable, or at least more equitable, path.
  3. Value, Certainty, and Defensibility of the Seized Claim:
    • If the seized claim itself is uncertain in its amount, is known to be subject to complex counterclaims or defenses by the third-party debtor, or its collectability is otherwise doubtful, the risk associated with an Assignment Order (where the creditor's original claim is deemed satisfied at face value regardless of actual recovery) might be unacceptably high. The safer, albeit potentially slower, route of Collection, where the original claim is only reduced by amounts actually recovered, might be preferable.
  4. Cost and Time Considerations:
    • A Collection Action can become more time-consuming and involve additional legal costs if litigation against the third-party debtor becomes necessary. An Assignment Order, if successfully obtained and the third-party debtor pays, can be quicker.
  5. Creditor's Own Financial Situation and Risk Appetite:
    • A creditor might prefer the relative certainty of potentially recovering at least a portion of their claim through pro-rata distribution via the collection route, rather than the "all-or-nothing" (at face value of the seized claim) risk profile of an Assignment Order when the third-party debtor's reliability is questionable.

A common strategy discussed by practitioners is to first utilize the "Demand for Statement" (chinjutsu saikoku) from the third-party debtor. If this statement indicates that the claim is clear, undisputed, and the third-party debtor is solvent, and if no other competing seizures are apparent, then petitioning for an Assignment Order might be advantageous. If, however, the statement reveals complexities, disputes, or prior claims, the collection route is generally the more prudent approach.

Conclusion

Once a creditor in Japan has successfully seized a monetary claim owed to their debtor by a third party, they are faced with two primary statutory methods to convert that seizure into actual funds: exercising their Right of Collection (which may involve a Collection Action if the third-party debtor does not pay voluntarily) and petitioning for an Assignment Order. The collection pathway generally offers more safety in terms of preserving the creditor's original claim until actual funds are recovered and allows for equitable sharing if multiple creditors are involved. The Assignment Order, in contrast, offers the allure of speed and exclusivity but transfers the full risk of the seized claim's uncollectibility onto the executing creditor by deeming their original claim satisfied at face value. The choice between these powerful enforcement tools is not merely procedural but involves a significant strategic assessment of the specific risks and potential rewards presented by the circumstances of the seized claim and the third-party debtor.