Simplified Distributions in Small-Scale Japanese Bankruptcies (Kan-i Haito)

Japanese Attorney at Law - Bengoshi L.L.

• 7 min read

When a company in Japan enters bankruptcy proceedings (破産手続 - hasan tetsuzuki), the ultimate goal for creditors is to receive a distribution (配当 - haitō) from the debtor's liquidated assets. While formal and comprehensive distribution procedures exist, Japanese bankruptcy law also provides for "Simplified Distribution" (簡易配当 - kan-i haitō) mechanisms. These are designed to expedite the process and reduce administrative costs, particularly in smaller or less complex cases. One of the most frequently utilized forms is the "Small-Amount Type" Simplified Distribution, applicable when the total funds available for distribution are relatively modest.

This article explains the Small-Amount Type Simplified Distribution, outlining its purpose, applicability, and the procedural steps involved from a creditor's perspective.

What is Simplified Distribution (簡易配当 - Kan-i Haitō) in Japanese Bankruptcy?

Simplified Distribution, as outlined in Article 204 et seq. of the Japanese Bankruptcy Act (破産法 - Hasan Hō), offers a more streamlined alternative to the traditional "Final Distribution" (最後配当 - saigo haitō). The primary objectives are:

  • Speed: To enable creditors to receive their dividends more quickly.
  • Cost-Effectiveness: To reduce the administrative burdens and expenses associated with more formal distribution procedures, thereby preserving more of the estate's value for creditors.
  • Efficiency: To allow for a quicker conclusion of the bankruptcy proceedings in straightforward cases.

While the Final Distribution involves more extensive notice periods and formal hearings, Simplified Distribution curtails some of these formalities, making it suitable for many ordinary bankruptcy cases.

The "Small-Amount Type" Simplified Distribution (少額型の簡易配当 - Shōgaku-gata no Kan-i Haitō)

This specific type of simplified distribution is available when certain conditions are met, primarily related to the size of the distributable estate.

Applicability Criteria

The Small-Amount Type Simplified Distribution can be used if the bankruptcy trustee (破産管財人 - hasan kanzainin) determines that the total amount of funds available for distribution to bankruptcy creditors (after all administrative claims have been paid or secured) is less than ten million Japanese Yen (Bankruptcy Act, Article 204, Paragraph 1, Item 1). This threshold makes it applicable to a significant number of routine corporate and individual bankruptcy cases where asset realization is limited.

Key Advantage

The primary procedural advantage of the Small-Amount Type is that the trustee can proceed with this simplified method without first needing to give creditors a formal opportunity to object to the use of the simplified procedure itself. In other simplified distribution types for larger amounts (e.g., the "Creditor Objection Confirmation Type at Time of Distribution" - 配当時異議確認型 - haitō-ji igi kakunin-gata), creditors must be given a chance to object to the streamlined approach, potentially forcing a more formal Final Distribution. This step is bypassed in the Small-Amount Type, leading to greater efficiency. However, creditors retain the right to object to the contents of the proposed distribution schedule.

The Step-by-Step Process of a Small-Amount Simplified Distribution

The process for a Small-Amount Type Simplified Distribution, while streamlined, still involves several key steps overseen by the court and implemented by the trustee:

1. Completion of Liquidation and Prerequisite Payments

Before initiating any distribution, the trustee must ensure:

  • Substantial Completion of Asset Liquidation: Most, if not all, assets of the bankruptcy estate (破産財団 - hasan zaidan) have been converted to cash.
  • Payment/Provision for Administrative Claims: All administrative claims (財団債権 - zaidan saiken), such as the trustee's remuneration, legal fees, and other costs of administration, have been paid or sufficient funds have been set aside for their payment.
  • Determination of Bankruptcy Claims: The process of receiving proofs of claim (債権届出 - saiken todokede), investigating them (債権調査 - saiken chōsa), and resolving any disputes to arrive at a list of allowed bankruptcy claims (hasan saiken) is complete.

2. Preparation of the Distribution Schedule (配当表 - Haitō-hyō)

The trustee prepares a detailed Distribution Schedule (haitō-hyō). This crucial document outlines:

  • Each creditor entitled to receive a dividend.
  • The allowed amount of each creditor's claim.
  • The priority class of each claim (e.g., priority bankruptcy claim, general unsecured bankruptcy claim).
  • The total funds available for distribution to each class of claims.
  • The calculated distribution rate (配当率 - haitō-ritsu) for each class (e.g., X% for general unsecured claims). This is derived by dividing the total distributable funds for that class by the total allowed claims in that class.
  • The specific dividend amount to be paid to each creditor.

3. Application for Court Permission (簡易配当許可申請 - Kan-i Haitō Kyoka Shinsei)

The trustee must apply to the bankruptcy court for permission to conduct the simplified distribution (簡易配当許可申請書 - kan-i haitō kyoka shinseisho). This application is accompanied by the proposed Distribution Schedule and a summary of the estate's financial status (収支計算書 - shūshi keisansho).

4. Court Permission (裁判所の許可 - Saibansho no Kyoka)

The court reviews the trustee's application and the proposed distribution. If the court is satisfied that the conditions for a Small-Amount Type Simplified Distribution are met, that the proposed distribution is in accordance with legal priorities, and that the plan is fair, it will grant permission.

5. Notice of Distribution to Creditors (配当についての通知書 - Haitō ni tsuite no Tsūchisho)

Once court permission is obtained, the trustee is required to send a formal "Notice of Distribution" to all creditors whose claims have been allowed and who are entitled to participate in the distribution (Bankruptcy Act, Article 204, Paragraph 2). This notice is critical and typically includes:

  • The total amount of funds available for distribution by the estate.
  • The total amount of allowed bankruptcy claims participating in the distribution.
  • The specific creditor's own allowed claim amount.
  • The calculated dividend that the specific creditor is expected to receive.
  • The planned date or period for the payment of the dividend.
  • Information regarding the subsequent "exclusion period" and the period for creditors to object to the distribution schedule itself.
    The notice may also include a form for the creditor to provide their bank account details for the dividend payment (振込依頼書 - furikomi iraisho).

6. Deemed Arrival of Notice and Exclusion Period (除斥期間 - Joseki Kikan)

  • Deemed Arrival: The Notice of Distribution is typically sent by mail. For procedural timing, it is often "deemed" to have arrived a few days after dispatch (e.g., three days under Osaka District Court practice). The trustee then files a notification with the court confirming this deemed date of arrival (配当の通知の到達に係る届出書 - haitō no tsūchi no tōtatsu ni kakaru todokedesho) (Bankruptcy Act, Article 204, Paragraph 4).
  • Exclusion Period: A one-week "exclusion period" (joseki kikan) commences from this deemed date of arrival (Bankruptcy Act, Article 205, applying Article 198, Paragraph 1). This period is crucial for finalizing the list of participating claims. For example:
    • Contingent Claims: If a creditor has a claim subject to a suspensive condition (停止条件付債権 - teishi jōken-tsuki saiken), that condition must be fulfilled by the end of this exclusion period for the claim to be included in the current distribution (Art. 198(2)).
    • Secured Creditor Deficiencies: A secured creditor wishing to participate with their deficiency claim must generally prove the amount of that deficiency (e.g., after selling their collateral) by the end of this exclusion period (Art. 198(3)).

7. Period for Objections to the Distribution Schedule (配当表に対する異議申立期間)

After the one-week exclusion period has passed, creditors are given an additional one-week period to file any objections they may have to the contents of the Distribution Schedule with the bankruptcy court (Bankruptcy Act, Article 205, applying Article 200, Paragraph 1). Grounds for objection might include, for example, a belief that their own allowed claim amount is incorrectly stated in the schedule, that the priority assigned to their claim or another's is wrong, or that the calculation of their dividend is erroneous.

8. Payment of Dividends (配当の実施 - Haitō no Jisshi)

If no objections are filed during the prescribed period, or once any filed objections have been resolved by the court and the Distribution Schedule is finalized, the trustee proceeds to make the dividend payments to the creditors.

  • Method of Payment: Payments are overwhelmingly made via bank transfer to accounts designated by the creditors.
  • Small Dividends: For very small dividend amounts (e.g., less than 1,000 JPY), the process is simplified. Often, the original proof of claim form includes a pre-printed statement where creditors indicate their willingness to receive such small amounts, negating the need for separate confirmation later. If a creditor explicitly waives a small dividend, those funds may be reallocated or contribute to minor cost savings.
  • Unclaimed Dividends: If a creditor cannot be located or refuses to accept a dividend, the trustee may deposit the amount with a legal affairs bureau (供託 - kyōtaku).

9. Report of Distribution to the Court (簡易配当実施報告書 - Kan-i Haitō Jisshi Hōkokusho)

After all dividend payments have been completed, the trustee submits a final report to the court (簡易配当実施報告書 - kan-i haitō jisshi hōkokusho) confirming the execution of the simplified distribution. This report will include evidence of the payments made and a final accounting. This usually paves the way for the formal termination of the bankruptcy proceedings (破産手続終結 - hasan tetsuzuki shūketsu). Any minuscule remaining balance in the trustee's account (e.g., from bank interest accrued during the distribution) might be dealt with as additional trustee remuneration by some courts.

Benefits of the Small-Amount Simplified Distribution

The shōgaku-gata kan-i haitō offers clear advantages in appropriate cases:

  • Speed: The entire distribution process, from court permission to payment, can often be completed within a few weeks, significantly faster than a full Final Distribution.
  • Cost-Effectiveness: Reduced administrative steps, fewer formal notices, and potentially fewer court hearings translate into lower costs for the bankruptcy estate. This means a larger proportion of the collected funds can be distributed to creditors rather than being consumed by procedural expenses.
  • Simplicity: The process is less cumbersome for the trustee, the court, and often for the creditors as well.

Conclusion

The Small-Amount Type Simplified Distribution (shōgaku-gata kan-i haitō) is a pragmatic and widely utilized feature of the Japanese bankruptcy system, designed to ensure that creditors in smaller estates can receive their entitled share of assets in an efficient and timely manner. By streamlining various procedural formalities while preserving essential creditor rights such as notice and the ability to object to the proposed share, this method balances the need for due process with the practicalities of administering less substantial bankruptcy estates. For creditors, understanding that this expedited route exists, particularly when the distributable amount is under ten million JPY, can help set realistic expectations for the timing and nature of the distribution phase.