My Company's Japanese Bank Account is Seized: How Do We Handle Enforcement Deposits for Principal and Interest?

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read

When a company's bank account in Japan is targeted by seizure orders from its creditors, the financial institution holding the account (acting as a "third-party obligor") steps into a complex legal arena governed by Japan's Civil Execution Act (Minji Shikkō Hō). The bank's primary duties involve freezing the relevant funds and, in many cases, making an "enforcement deposit" (shikkō kyotaku) with a legal affairs bureau. This process is fraught with intricacies, particularly concerning how much principal is affected by successive seizure orders and how accrued interest is treated. Missteps can lead to liability for the bank. This article outlines the key considerations for financial institutions navigating these enforcement deposits.

The Seizure Order's Grip: What Funds Are Affected?

Understanding the precise scope of a seizure order is the first critical step for a bank.

  1. Attachment to Balance at Time of Service:
    Under Article 145, Paragraph 4 of the Civil Execution Act, a seizure order served on a bank for a customer's deposit account attaches to the funds existing in that account at the exact moment the order is served on the bank. The bank must ascertain this balance immediately.
  2. Subsequent Deposits Generally Not Covered by Prior Orders:
    A crucial point is that a seizure order generally does not automatically attach to funds deposited into the account after that specific order has been served. For example, if Seizure Order A is served on Monday when the balance is ¥1,000,000, it attaches to that ¥1,000,000. If the account holder deposits an additional ¥500,000 on Tuesday, Seizure Order A does not, by itself, extend to this new ¥500,000. These new funds would only be captured if a new seizure order (Seizure Order B) is served after Tuesday's deposit, or if the initial order contained highly specific (and less common for typical deposit accounts) language attempting to cover future accruing balances from a defined source.

The bank's immediate obligation upon receiving a seizure order is to prevent payments from the account to the account holder or other parties, up to the lesser of the seized claim amount or the account balance caught by the order.

Untangling Interest: What's Seized and What's Not?

The treatment of interest on seized bank deposits requires careful distinction:

  1. Interest Accruing After Seizure on Seized Principal:
    When a principal sum in a bank account is seized, the seizure is generally understood to extend to any interest that accrues on that seized principal amount from the date of the seizure order's service onwards. This future interest is treated as an accessory or fruit of the seized principal sum.
  2. Interest Accrued Before Seizure (Pre-existing Accrued Interest):
    Interest that had already accrued on the account balance but had not yet been formally credited or capitalized into the principal before the service of the seizure order is generally not automatically covered by a seizure order that only refers to the "deposit claim" or principal balance. For a seizing creditor to effectively capture such pre-existing, uncapitalized accrued interest, the seizure order itself would typically need to explicitly state that it extends to such accrued interest.

The Labyrinth of Multiple Seizures: "Expansion of Seizure Effect" and Its Impact on Interest

The situation becomes significantly more complex when multiple seizure orders are served on the bank for the same account, and these seizures "compete"—meaning the total amounts claimed by the seizing creditors exceed the funds available and seizable in the account. In such cases, Article 149 of the Civil Execution Act, concerning the "expansion of seizure effect" (sashiosaekō no kakuchō), plays a pivotal role, especially concerning the allocation of interest.

Consider the following scenario, drawing from principles illustrated in procedural commentaries:

  1. Initial State: Account balance is ¥1,000,000.
  2. Seizure Order 1 (S1) Served: S1 is served on the bank, claiming ¥600,000 from the account holder.
    • Effect on Principal: S1 attaches to ¥600,000 of the current ¥1,000,000 principal.
    • Effect on Interest: Interest will begin to accrue on this seized ¥600,000 portion from the date S1 was served.
  3. New Funds Deposited: The account holder deposits an additional ¥100,000 into the account. The new balance is ¥1,100,000.
    • S1's Scope: S1 does not attach to this newly deposited ¥100,000. Its lien remains on the original ¥1,000,000 (up to its ¥600,000 claim).
  4. Seizure Order 2 (S2) Served: S2 is served, claiming ¥700,000 from the account holder.
    • Effect on Principal: S2 attaches to the current balance of ¥1,100,000 (up to its ¥700,000 claim).
    • Competition Arises: Now, S1 (claiming ¥600,000) and S2 (claiming ¥700,000) are competing for the available ¥1,100,000. The total claims (¥1,300,000) exceed the balance.

Impact of Competition on Interest Allocation (A Nuanced Point):
The "expansion of seizure effect" under Article 149 means that once seizures compete, the effect of each participating seizure is deemed to extend over the entirety of the monetary claim that is subject to the competition. This has specific implications for how interest is treated for distribution purposes when the bank later makes an enforcement deposit:

  • For S1, while its direct lien on principal was established based on the balance at its service, the subsequent competition created by S2 means that when calculating the interest pool for eventual distribution by the court, the interest attributable to S1 might be considered in light of the total funds involved in the competition.
  • Procedural guidelines suggest that the total sum to be deposited by the bank would typically be the principal amount available at the time the deposit obligation crystallizes (e.g., ¥1,100,000 in the scenario), plus:
    • Interest that accrued on S1's originally seized principal (¥600,000) from the date S1 was served until the day before S2 was served (i.e., before competition arose).
    • Interest that accrued on the entire amount subject to competition (¥1,100,000) from the date S2 was served (when competition began) until the date the bank makes the enforcement deposit.
  • This entire pool of principal and meticulously calculated interest then becomes the fund that the execution court will distribute among the competing creditors according to their priorities and claim amounts. It's acknowledged that specific interpretations or local court practices regarding the precise apportionment of interest in complex competing seizure scenarios can sometimes vary, making careful documentation by the bank even more critical.

The Bank's Response: Making an Enforcement Deposit

Faced with one or more seizure orders, the bank (as third-party obligor) will typically make an enforcement deposit:

  1. "Rights Deposit" (権利供託 - Kenri Kyotaku) - Civil Execution Act Art. 156(1): If there is only one seizure order, or multiple orders that are not yet "competing" (e.g., their total claims are less than the seizable account balance), the bank may choose to deposit the seized funds. This is a voluntary act to obtain a discharge.
  2. "Obligatory Deposit" (義務供託 - Gimu Kyotaku) - Civil Execution Act Art. 156(2): If multiple seizure orders are served and they compete for the funds in the account, the bank is obligated to deposit the funds.

What to Deposit:
The deposit should typically comprise the entire seizable account balance at the time the deposit is made (or when the obligation to deposit arises), plus all relevant accrued interest that is covered by the seizure(s), calculated as discussed above.

Depositing Pre-existing, Unseized Interest:
What if there is interest that had accrued before any seizure order was served, and this interest was not explicitly captured by the wording of the seizure orders? The bank is not obligated to include this as part of the enforcement deposit. However, if the bank wishes to completely clear the account and avoid a separate settlement with the account holder for this small, unseized interest amount, it has been suggested that it could deposit this as well. This would involve citing not only Article 156(2) (for the competed-for, seized portion) but also Article 156(1) on the deposit form. The portion representing this unseized, pre-existing interest would then effectively have the character of a voluntary performance deposit made for the benefit of the account holder. It would not form part of the funds distributable to the seizing creditors and would be claimable by the account holder from the deposit office.

Crafting the Deposit Application (Kyotakusho): Precision is Paramount

When a bank makes an enforcement deposit, especially in scenarios involving multiple seizures, fluctuating account balances due to inter-seizure deposits by the account holder, and complex interest calculations, the information provided on the deposit application form is critical. The "Facts Constituting the Cause for Deposit" (供託の原因たる事実 - kyotaku no gen'in taru jijitsu) section must be meticulously detailed.

This section should include:

  • The date of service for each seizure order received by the bank.
  • The dates and amounts of any changes to the principal balance of the account (e.g., new funds deposited by the account holder between the service of different seizure orders).
  • A clear and unambiguous breakdown of the total principal amount being deposited and the total interest amount being deposited.
  • A specification of how the interest was calculated, including the relevant periods, applicable interest rates, and the principal bases used for each period of calculation.

Providing this level of detail, perhaps even supplemented with a chronological diagram or list showing account balance changes and the timing of seizure order services (as was done in an example within background materials ), is vital. It enables the execution court to accurately understand the sequence of events, identify the funds subject to each respective seizure, and correctly conduct the subsequent distribution (haitō) procedure among the entitled creditors.

Citing the Correct Legal Basis:
The choice of statutory article(s) to cite on the deposit form depends on the circumstances:

  • If seizures are competing, Article 156, Paragraph 2 of the Civil Execution Act will be a primary legal basis.
  • If the bank is also voluntarily depositing portions not strictly subject to an obligatory deposit (e.g., the full balance when only part is seized but there's no actual competition, or if including unseized pre-existing interest as discussed above), Article 156, Paragraph 1 might also be cited.
  • In the PDF's illustrative scenario where Seizure Order 2 attached to funds not caught by Seizure Order 1 (the additional ¥100,000 deposited between S1 and S2), the deposit of this distinct ¥100,000 portion (if S2 was the only claim against it, or if it was deposited voluntarily before other competition on it arose) could be seen as a "rights deposit" under Article 156(1). If other parts of the total sum are subject to competing seizures (e.g., the original ¥1,000,000 now subject to both S1 and S2), then Article 156(2) would apply to that portion. Consequently, the deposit application might cite "Civil Execution Act Article 156, Paragraph 1 and Paragraph 2" to cover the entirety of a complex deposit.

After the Deposit: Notifying the Court

Once the enforcement deposit is made, the bank's responsibility is not yet over. It must promptly file a "Notification of Circumstances" (jijō todoke) with the execution court(s) that issued the seizure orders (Civil Execution Act Article 156, Paragraph 3). This notification officially informs the court(s) of the deposit, enabling them to take cognizance of the funds and initiate the necessary procedures for distribution to the creditors.

Conclusion: Navigating Seizure Complexities with Due Diligence

For financial institutions in Japan, handling seized customer accounts is a task that demands precision and a thorough understanding of the Civil Execution Act. Banks must meticulously track the service dates of seizure orders, any intervening changes to account balances, and the specific rules governing the attachment and accrual of interest. The "expansion of seizure effect" under Article 149, particularly in competing seizure scenarios, can significantly alter the scope of funds, especially interest, that are considered part of the execution and must be included in the deposit.

Crafting a clear, detailed, and legally accurate deposit application is not merely a procedural formality; it is essential for ensuring that the execution court can correctly administer the subsequent distribution of the deposited funds. Given the potential for liability if errors are made, financial institutions facing complex multi-seizure situations are well-advised to establish robust internal procedures and to seek legal clarification whenever doubts arise regarding their duties and the correct deposit amounts as third-party obligors.