Perfecting Security Interests in Future Claims in Japan: How Does the Special Act on Assignment of Movables and Claims Work?

For corporations seeking flexible financing options, such as securitization or asset-based lending, the ability to assign future claims—receivables expected to arise from ongoing business activities—is invaluable. While the Japanese Civil Code provides a general framework for claim assignments, its traditional perfection methods (individual notices to or consents from obligors, using instruments with certified dates) can be cumbersome and costly for bulk assignments, especially when dealing with a multitude of future, and sometimes initially unspecified, obligors.

Recognizing these limitations, Japan enacted the "Act on Special Provisions for the Civil Code Concerning the Perfection Requirements for the Assignment of Movables and Claims" (動産及び債権の譲渡の対抗要件に関する民法の特例等に関する法律, Dōsan oyobi Saiken no Jōto no Taikōyōken ni kansuru Minpō no Tokurei tō ni kansuru Hōritsu), often referred to as the "Special Act on Assignment of Movables and Claims" or simply the "Special Act." This legislation introduced a dedicated registration system designed to streamline the perfection process for assignments of monetary claims by corporations, including future claims.

Overview of the Special Act

The Special Act was first established in 1998 (then focusing only on claims) and significantly revised in 2004 to include movables and refine the claim assignment registration system. Its primary objective is to facilitate corporate fundraising by providing a more efficient and reliable method for perfecting assignments of claims, thereby enhancing their utility as collateral.

Key features of the claim assignment registration system under the Special Act include:

• Assignor Eligibility: The assignor must be a corporation (法人, hōjin). The Act does not apply to assignments by individuals.
• Eligible Claims: The assigned claims must be monetary claims (金銭債権, kinsen saiken). This broad category includes existing accounts receivable as well as future claims. The Act itself does not govern the validity of the underlying assignment agreement or the purpose of the assignment (e.g., outright sale for securitization or assignment for security purposes).
• Centralized Registration System: A dedicated "Claim Assignment Registration File" (債権譲渡登記ファイル, saiken jōto tōki fairu) is maintained electronically by the Tokyo Legal Affairs Bureau, which acts as a centralized registry for the entire country. Applications for registration are typically made jointly by the assignor and assignee.

Perfecting Assignments of Future Claims (将来債権, Shōrai Saiken)

A significant aspect of the Special Act is its clear affirmation of the ability to perfect assignments of future claims through the registration system. This is crucial for businesses that rely on future revenue streams as a basis for financing.

Specificity Requirements for Registering Future Claims

While the Special Act facilitates the assignment of future claims, it requires a certain degree of specificity in the registration to ensure the assigned claims are identifiable. According to Article 8, Paragraph 2, Item 4 of the Act and its associated Cabinet Orders and Ministry of Justice Ordinances, the registration application for future claims must include "matters necessary to identify the assigned claims." These typically include:

• A claim serial number or other unique identifier.
• Information about the cause of the claim (e.g., the type of underlying contract or transaction).
• The type or nature of the claim (e.g., sales receivables, lease receivables).
• The date or period during which the claims are expected to arise (start and end dates of the generation period).

Even if a corporation intends to assign all future claims arising from a particular business segment, these details must be sufficiently articulated in the registration. A vague registration of "all future claims" without further specification would likely be insufficient.

Registration Without Specifying Obligors (債務者不特定, Saimusha Futokutei)

A pivotal amendment to the Special Act in 2004 was the introduction of the ability to register assignments of future claims without identifying the specific obligors at the time of registration. Prior to this, the obligor's name and address were generally required registration items. This change was a significant boon for businesses dealing with a large, fluctuating, or not-yet-ascertained pool of future customers or clients, such as:

• Utility companies (future utility fee receivables).
• Telecommunication service providers (future service fee receivables).
• Credit card issuers (future credit card receivables from unspecified cardholders).
• Lessors (future lease payments from yet-to-be-identified lessees).
• Retailers assigning receivables from future sales of inventory.

For such assignments of future claims where obligors are not specified at the time of registration, the perfection against third parties (other than the obligors themselves) is achieved upon registration.

It's important to note that if the assigned claims are existing claims (i.e., already generated claims), the name and address of the obligor remain mandatory items for registration.

The Effect of Registration under the Special Act

Registration under the Special Act has a precise legal effect:

• Perfection Against Third Parties (Other Than the Obligors): Once a claim assignment is registered, it is deemed to have been perfected against third parties (excluding the obligor(s) of the assigned claim) as if notice had been given by an instrument bearing a certified date under Article 467, Paragraph 2 of the Civil Code. The date of registration is treated as the certified date for this purpose. This means the assignee gains priority over subsequent assignees of the same claim, subsequent attaching creditors of the assignor, and the assignor’s bankruptcy trustee, provided the registration is made before these competing interests arise or are perfected.
• Priority Among Multiple Registrations: If the same claim (or overlapping sets of future claims) is assigned multiple times and each assignment is registered under the Special Act, priority among these registered assignees is determined by the "registration number" (登記番号, tōki bangō). The registration number reflects the chronological order of registration, and the registry also records the date and time of registration.
• Duration of Registration: Registrations under the Special Act are not perpetual. The Act specifies maximum durations:
  • Generally, 10 years if the assigned claims include future claims for which all obligors are not specified at the time of registration.
  • Generally, 50 years if all obligors of the assigned claims (including future claims) are specified.
  • These periods can be extended under certain conditions. It's crucial to remember that this is the duration of the registration's effectiveness for perfection purposes, not the lifespan of the assigned claims themselves.

The Crucial Distinction: Perfection Against Obligors

One of the most critical aspects to understand about the Special Act's registration system is that it separates the perfection of an assignment against third parties (other than the obligor) from its perfection against the actual obligor(s) of the assigned claim.

Registration under the Special Act, by itself, does not make the assignment assertable against the obligor. The obligor is not expected to monitor the claim assignment registry. For the assignee to be able to directly demand payment from the obligor and for the obligor to be obligated to pay the assignee (and be discharged by doing so), the perfection requirements against the obligor (債務者対抗要件, saimusha taikō yōken) must still be met.

The Special Act (in Article 4, Paragraph 2) modifies the way perfection against the obligor is achieved when an assignment has been registered:

1. Notice with Certificate of Registered Matters: The assignor or the assignee must give notice of the assignment to the obligor, and this notice must be accompanied by the delivery of a "Certificate of Registered Matters" (登記事項証明書, tōki jikō shōmeisho) pertaining to that specific assignment registration, issued by the Legal Affairs Bureau. A simple notice of assignment (even one with a certified date under the Civil Code) is insufficient if the chosen perfection route against third parties was registration under the Special Act. The delivery of the original certificate is generally required, not a copy.
2. Obligor's Consent: Alternatively, the obligor may consent to the assignment and to the fact that the assignment has been registered. Unlike notice, this consent does not require the delivery of a Certificate of Registered Matters to the obligor.

Only when one of these conditions is met can the assignee assert the assignment against the obligor and compel payment. Until then, the obligor may continue to pay the original creditor (the assignor) and be discharged.

Challenges with Initially Unspecified Obligors

When future claims are assigned and registered without specifying the obligors, a practical issue arises when an obligor is later identified and needs to be notified. The Certificate of Registered Matters delivered to such an obligor will not contain that particular obligor's name (as it wasn't known at the time of registration). In such cases, the obligor must determine if the claim they owe falls under the scope of the registered assignment by examining other details in the certificate, such as the assignor's identity, the type of claim, the originating transaction or cause, and the claim generation period. This can sometimes lead to uncertainty for the obligor.

Interaction with Civil Code Perfection Methods

The Special Act's registration system is an alternative to, not a replacement for, the perfection methods provided in the Civil Code (Article 467). Assigning parties (especially corporations assigning monetary claims) have the freedom to choose which perfection method to use.

If an assignment perfected by registration under the Special Act competes with an assignment of the same claim perfected under the Civil Code (i.e., through notice to or consent from the obligor with a certified date), priority is determined by comparing the date of registration under the Special Act with the date of arrival of the Civil Code notice at the obligor (or the date of the obligor's certified-date consent). The earlier-in-time perfection prevails.

Conclusion and Practical Implications

The Special Act on Assignment of Movables and Claims provides a vital mechanism for Japanese corporations to utilize their existing and, crucially, future monetary claims as a tool for financing. The registration system offers an efficient way to perfect assignments of bulk claims against third parties, overcoming the practical difficulties of individual notices under the Civil Code, especially for future claims where obligors may not yet be identified.

However, users of this system must remain acutely aware of its dual-layered nature. Registration perfects the assignment against most third parties but, on its own, does not bind the obligor of the assigned claim. A subsequent, distinct step—typically notice to the obligor accompanied by a Certificate of Registered Matters—is essential for the assignee to establish direct rights against the obligor. Navigating these requirements carefully is key to effectively leveraging future claims as a secure and reliable source of corporate funding in Japan.