A Japanese "Factory Foundation" (Kojo Zaidan) is a unique legal construct under the Factory Mortgage Act (Act No. 54 of 1905), allowing a diverse collection of factory-related assets to be bundled and treated as a single immovable property for mortgage purposes. However, the composition of such a foundation is not immutable. Factories evolve: new machinery is acquired, old equipment is decommissioned, land parcels may be reconfigured, or intellectual property rights may be added or expire. Japanese law provides specific procedures for registering these changes to ensure the Factory Foundation Inventory (Kojo Zaidan Mokuroku) accurately reflects the foundation's current constituent assets (sosei bukken), thereby maintaining the integrity and enforceability of any mortgage upon it.

The Factory Foundation Inventory: A Living Document

The Factory Foundation Inventory is the definitive, itemized list of all assets—land, buildings, machinery, industrial property rights, etc.—that constitute the Factory Foundation. This inventory is not merely a supporting document; it is legally considered an integral part of the Factory Foundation Register. Its accuracy is paramount because:

• It defines the scope of the Factory Foundation and, consequently, the scope of any mortgage placed upon the foundation.
• The recording of an asset in the inventory is generally an establishment requirement (seiritsu yōken) for that asset to be considered part of the foundation and a perfection requirement (taikō yōken) for its status as such to be opposable to third parties.

Given the dynamic nature of industrial operations, the Factory Mortgage Act (Article 38, Paragraph 1) places an obligation on the owner of the Factory Foundation to apply for an amendment registration (henkō tōki) to the inventory without delay whenever a change occurs to the matters recorded therein.

Types of Modifications and Their Registration Procedures

The Factory Mortgage Act and associated regulations detail procedures for several types of modifications to the Factory Foundation Inventory.

1. Adding New Assets to the Foundation (Sosei Bukken no Tsuika)

Businesses may wish to incorporate newly acquired assets into an existing Factory Foundation, perhaps to increase its collateral value or to reflect an expansion of operations.

• Reasons for Addition: Acquiring new land or buildings for the factory, installing new production lines or significant machinery, obtaining new industrial property rights relevant to the factory's operations.
• Eligibility of New Assets: Any asset being added must meet the same stringent eligibility criteria as the initial constituent assets. This means it must generally be owned by the foundation owner, not be subject to conflicting third-party rights or attachments, and if it's a type of asset with its own registration system (e.g., real estate, patents), it must be duly pre-registered in the owner's name.
• Application Process (Factory Mortgage Act, Article 39; related articles applied by Article 43):
  • The foundation owner applies for a "registration of change to the Factory Foundation Inventory" to reflect the additions.
  • Mortgagee's Consent: The consent of all existing mortgagees on the Factory Foundation is typically required (Article 38, Paragraph 2, Factory Mortgage Act). Adding assets generally increases the collateral value, so this consent is often obtainable.
  • Documentation: An "Additional Inventory" (tsuika mokuroku) detailing the new assets must be submitted, along with an updated Factory Plan/Diagram (Kojo Zumen) if the additions significantly alter the factory's layout or the placement of key items.
  • Special Procedures for Certain New Assets:
    • Unregistered Movables (e.g., new machinery): If new machinery or other movables without their own registration system are being added, a public notice procedure similar to that required for the initial establishment of the foundation must be undertaken (Article 43 of the Act, applying Article 24). This involves publishing a notice in the Official Gazette (Kanpo) to allow any third parties with undisclosed rights over these new movables to declare them. If no valid claims are substantiated, these new movables can be incorporated.
    • Previously Registered Assets (e.g., new land parcel, new patent): These must be properly registered in the owner's name first. Upon addition to the foundation, the registry office will make (or instruct other relevant authorities to make) notations in their individual registers indicating that they now belong to the specific Factory Foundation (Article 43 of the Act, applying Article 34).
• Legal Effect: Upon successful amendment registration, the new assets officially become part of the Factory Foundation and are automatically covered by any existing mortgage(s) on the foundation. Their inclusion and the mortgage's reach over them become perfected against third parties.

2. Removing or Separating Assets from the Foundation (Sosei Bukken no Bunri)

Circumstances may arise where the owner needs to remove an asset from the Factory Foundation, for example, to sell surplus machinery, replace obsolete equipment, or if a particular parcel of land is no longer needed for the factory's operations.

• Critical Role of Mortgagee Consent (Factory Mortgage Act, Article 15): If the Factory Foundation is mortgaged, Article 15, Paragraph 1, stipulates that a constituent asset can only be separated from the foundation with the consent of the mortgagee(s). This is a fundamental protection for lenders, as separating an asset diminishes the collateral pool. The application for the inventory amendment must include proof of this consent (Article 38, Paragraph 2).
• Application Process: The foundation owner applies for a "registration of change to the Factory Foundation Inventory" to reflect the separation.
• Limitations on Separation: An asset cannot be separated if its removal would mean that a particular factory unit within the foundation no longer contains an essential "locational" real property component (i.e., land or buildings, or rights thereto). Such a separation would undermine the factory unit's legal basis for being part of any foundation. If an entire factory unit is to be removed from a multi-factory foundation, all its assets, including its locational base, must be separated.
• Execution and Legal Effect (Factory Mortgage Act, Article 42, Article 44):
  • The registry office, upon a valid application, will amend the Factory Foundation Inventory by marking the separated asset as removed (e.g., by striking it through and noting the date and reason for separation).
  • If the separated asset was a registered property (like land or a patent), the Article 34 notation in its individual register (stating it "belongs to Factory Foundation No. X") will be cancelled.
  • Once formally separated, the asset is no longer part of the Factory Foundation, is freed from the foundation mortgage, and is no longer subject to the foundation-specific restrictions on disposition. It can then be dealt with as an independent asset.

3. Registering Changes in the Description of Existing Constituent Assets (Hyōji Henkō)

If the registered details of an asset already within the foundation change, the inventory must be updated.

• Examples: A parcel of land within the foundation is subdivided or consolidated, resulting in new lot numbers; a factory building undergoes significant renovation that changes its registered structure or floor area; the registration number of an included patent is updated due to administrative reasons.
• Procedure: The foundation owner applies for an amendment, providing details of the changes and evidence supporting them (e.g., updated land register excerpts, building registration details). Mortgagee consent is generally required (Article 38, Paragraph 2) as changes could potentially impact valuation or identification.
• Prerequisite: For assets with their own public registers (like land or buildings), their primary registers must usually be updated first to reflect the change before the Factory Foundation Inventory can be amended.
• Legal Effect: Ensures the inventory accurately identifies the constituent assets, maintaining the clarity and integrity of the public record and the mortgage.

4. Registering the Loss or Destruction of Constituent Assets (Messhitsu)

If a constituent asset is physically destroyed (e.g., a building by fire, machinery damaged beyond repair) or if a right included in the foundation ceases to exist (e.g., a leasehold expires, a patent lapses), this must be reflected in the inventory.

• Procedure (Factory Mortgage Act, Article 42): The foundation owner applies for an amendment to remove the lost or destroyed asset from the inventory.
• Mortgagee Consent: Given the impact on collateral value, the consent of the mortgagee(s) is generally required (Article 38, Paragraph 2). Evidence of the loss or destruction may also be needed.
• Legal Effect: The asset is formally removed from the Factory Foundation. If the loss is substantial (e.g., the destruction of the sole factory building that formed the locational basis of a single-factory foundation), it could have more profound consequences:
  • It might necessitate a change in the overall description of the Factory Foundation in its main register (e.g., if a multi-factory foundation loses one of its factory units).
  • In extreme cases, if the remaining assets can no longer constitute a "factory" or meet the minimum requirements for a foundation, it could lead to the dissolution of the entire Factory Foundation (often following procedures similar to those under Article 44-2 of the Act for voluntary dissolution).

5. Correcting Errors in the Factory Foundation Inventory (Kōsei)

If errors were made in the initial Factory Foundation Inventory or in any subsequent amendments—such as incorrect descriptions, typographical mistakes, or the erroneous inclusion of an ineligible asset (e.g., an asset not owned by the foundation owner, or an asset that was already subject to a conflicting third-party right)—a "registration of correction" (kōsei tōki) is required.

• Procedure: The foundation owner applies for the correction, providing details of the error and the correct information. Mortgagee consent is typically necessary.
• Legal Effect: Rectifies the public record to accurately reflect the true composition and status of the foundation's assets, which is crucial for legal certainty.

General Procedural Aspects for All Inventory Amendments

While specifics vary by type of change, some common procedural elements apply:

• Applicant: The application for amendment is made by the owner of the Factory Foundation.
• Application Information: Must clearly identify the Factory Foundation (by registration number), the type of amendment, the cause and date of the change, and detailed descriptions of the assets affected. Reference to attached revised or supplementary inventories and factory plans is common.
• Attached Documents: Typically include:
  • Proof of the mortgagee(s)' consent (often with their corporate certificates and印鑑証明書 - inkanshomeisho or seal certificates).
  • New or revised inventory lists and factory plans, if applicable.
  • Evidence supporting the cause of the change (e.g., purchase agreements for additions, destruction certificates for losses, updated land register excerpts for descriptive changes).
  • Corporate documents of the applicant and powers of attorney if agents are used.
• Registry Office Actions: The registry will scrutinize the application and supporting documents. For additions of unregistered movables, a public notice procedure will be conducted. For additions or separations of assets registered in other jurisdictions (e.g., patents), notifications will be exchanged with those authorities. If approved, the registry updates the Factory Foundation Inventory and, where necessary, initiates or confirms the making or cancellation of notations in the individual registers of constituent assets.
• Registration and License Tax: A fee is payable for each amendment registration.

Legal Effect and Importance of Timely Amendments

Amendment registrations to the Factory Foundation Inventory are not mere administrative formalities. They have direct legal consequences:

• They update the official public record of what constitutes the Factory Foundation.
• For additions, the amendment registration is the point at which the new asset formally becomes part of the foundation and thereby subject to its mortgage, with perfection against third parties for that asset usually dating from this amendment.
• For separations, the amendment marks the formal release of the asset from the foundation and its mortgage.
• For changes in description or corrections, they ensure the continued identifiability of the assets and the accuracy of the security interest.

Timely and accurate amendments are crucial for maintaining the legal validity of the Factory Foundation, ensuring the continued perfection of the mortgage over its intended and actual scope of assets, avoiding disputes with third parties, and complying with the foundation owner's statutory obligations.

Conclusion

Managing a Factory Foundation in Japan is an ongoing responsibility that extends beyond its initial establishment. The Factory Mortgage Act provides a detailed framework for modifying the foundation's composition by adding, removing, or altering the description of its constituent assets. These procedures, centered around amending the Factory Foundation Inventory, typically require the consent of mortgagees and involve formal registration steps. Adherence to these processes is vital for ensuring that the foundation accurately reflects the operational reality of the factory and that the mortgage upon it remains a robust, comprehensive, and enforceable security interest over the intended collateral package.