Uncovering Hidden Assets: How Does Japan's "Property Disclosure Procedure" (Zaisan Kaiji Tetsuzuki) Work and What Are Its Limits?

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read

For a creditor, obtaining a favorable judgment is often only half the battle. The real challenge frequently lies in locating the debtor's assets to actually satisfy the claim. Debtors may actively conceal their property, or their financial situation may simply be opaque to the outside world. To address this critical information gap in the enforcement process, Japan introduced the "Property Disclosure Procedure" (zaisan kaiji tetsuzuki, 財産開示手続) through a 2003 amendment to its Civil Execution Act. This procedure aims to compel debtors, under court supervision, to reveal information about their assets, thereby facilitating compulsory execution. However, while well-intentioned, the practical effectiveness and inherent limitations of this system have been subjects of ongoing discussion and calls for reform.

The core objective of the Property Disclosure Procedure (Articles 196-206, Civil Execution Act) is to enhance the efficacy and reliability of the civil execution system by making it more difficult for debtors to evade their obligations by hiding assets. When creditors are unable to identify seizable property, even a valid title of obligation (such as a final judgment) can become a mere "paper tiger." The disclosure procedure is intended to provide creditors with a formal legal mechanism to obtain information directly from the debtor regarding their financial status and property holdings.

Who Can Initiate the Procedure and Under What Conditions?

Access to this procedure is not unlimited and is subject to specific criteria:

  • Eligible Creditors (申立権者 - Mōshitatekensha):
    The right to petition for a property disclosure order is granted to:
    1. Creditors who hold an enforceable title of obligation, with some notable exclusions. Specifically, titles of obligation that are themselves based on a declaration of provisional execution (such as a judgment with provisional execution or a payment order with provisional execution) or an execution deed (a notarized document prepared by a notary) do not qualify as a basis for initiating this procedure. This limitation reflects a legislative caution, reserving this somewhat inquisitorial tool for claims that have arguably undergone a more definitive or rigorous prior judicial process.
    2. Creditors who can prove the existence of a general statutory lien (一般の先取特権 - ippan no sakidori-tokken) through documentary evidence.
  • Prerequisites for Application (要件 - Yōken):
    Even for eligible creditors, one of the following conditions must generally be met:
    1. Unsuccessful Prior Execution Attempt (the "Non-Success Requirement" - 不奏功要件 - Fusōkō Yōken): The creditor must typically demonstrate that a compulsory execution or an attempt to execute a security right, initiated within the preceding six months, has failed to result in the full satisfaction of their claim. This is often referred to as the "non-success" or "futility" requirement.
    2. Alternatively, a Prima Facie Showing of Insufficiency: The creditor can make a prima facie showing (somei, 疎明) to the court that even if execution were levied against all known assets of the debtor, it would not be sufficient to fully satisfy the claim. However, the practical application of this alternative has sometimes been strict. For instance, in one case that went to the Osaka High Court on January 19, 2010, an initial application for property disclosure was dismissed by the lower court despite the creditor having undertaken extensive (though ultimately unfruitful) efforts to locate assets. While this specific lower court decision was later found to have set too high a bar, it illustrates that simply asserting a lack of knowledge of assets may not always suffice without demonstrating diligent, yet unsuccessful, prior efforts.

The Disclosure Procedure Itself: What is the Debtor Obligated to Do?

Once a creditor's petition is deemed valid, the execution court will issue an order for the property disclosure procedure to commence (zaisan kaiji tetsuzuki jisshi kettei, 財産開示手続実施決定). The debtor is then summoned to appear before the court on a specified date. The procedure involves several key obligations for the debtor:

  1. Submission of a Property Inventory (財産目録 - Zaisan Mokuroku): The debtor is required to prepare and submit to the court a detailed inventory listing their assets. This inventory should, in principle, cover all their property, although certain assets statutorily exempt from execution (e.g., essential household goods, a portion of wages) might not need to be listed in the same detail.
  2. Appearance, Oath, and Statement (宣誓・陳述 - Sensei, Chinjutsu): The debtor must appear in person at the designated court hearing. This hearing is conducted in private (not open to the general public). At the hearing, the debtor must:
    • Take an oath to tell the truth regarding their assets.
    • Make a statement (orally confirm and elaborate on) the contents of the submitted property inventory.
    • Answer questions posed by the presiding judge and by the petitioning creditor concerning their property and financial affairs.
  3. Scope of Disclosure: The debtor is obligated to disclose all their positive assets (i.e., property owned, not just net worth). This includes providing specific details that would be necessary for the creditor to subsequently levy execution, such as:
    • Bank account numbers and the names of financial institutions.
    • Employer details for potential wage garnishment.
    • Locations and descriptions of real estate or valuable movable property.
    • Information about any claims they hold against third parties.

Confidentiality and Restrictions on the Use of Disclosed Information

To balance the creditor's need for information with the debtor's right to privacy, certain safeguards are in place:

  • Limited Access to Records: The records of the property disclosure procedure are not publicly accessible. Access is generally restricted to the petitioning creditor, other creditors who can demonstrate a similar legal standing to seek execution, and the debtor themselves.
  • Prohibition on Misuse of Information: Any information obtained by the creditor through this procedure is strictly for the purpose of facilitating civil execution or otherwise securing their claim. Using it for unrelated purposes (e.g., commercial exploitation, harassment) is prohibited.
  • Restriction on Repeated Applications: To prevent the procedure from being used as a tool for harassment, a creditor who has already subjected a debtor to property disclosure generally cannot file another petition against the same debtor for a period of three years, unless new circumstances warrant it.

The Achilles' Heel: Sanctions and Effectiveness in Practice

Despite the clear obligations imposed on the debtor, the practical effectiveness of the Property Disclosure Procedure in Japan has been a subject of considerable criticism, largely centering on the inadequacy of sanctions for non-compliance:

  • Sanctions for Non-Compliance (Article 206, Civil Execution Act): If a debtor:
    • Fails to appear at the hearing without a valid reason,
    • Refuses to take the oath,
    • Refuses to make statements, or
    • Makes false statements in the property inventory or during the hearing,
      they are subject to a non-penal administrative fine (karyō, 過料) of not more than JPY 300,000.
  • Practical Ineffectiveness and Criticisms:
    • Weak Deterrent: The maximum fine of JPY 300,000 is widely viewed as insufficient to compel a determined debtor, especially one with substantial hidden assets, to comply truthfully. For such debtors, the fine may be considered a small "cost of doing business" to protect larger assets.
    • Low Debtor Appearance Rates: Partly due to the weak sanctions, reported appearance rates by debtors at disclosure hearings have historically been quite low, sometimes estimated to be in the range of only 30% to 50%.
    • Difficulty in Verifying Truthfulness and Penalizing Falsehoods: Even if a debtor appears and makes statements, the court often lacks the independent means or resources to verify the accuracy and completeness of the disclosed information. Consequently, proving that a debtor has made a false statement (as opposed to simply omitting information) is challenging, and penalties for false statements are rarely imposed in practice. This allows debtors to potentially under-report or selectively disclose assets with little fear of repercussion.
    • Limited Asset Discovery: As a result of these factors, the procedure frequently fails to uncover significant, previously unknown assets. Creditors often find that the information disclosed is minimal or pertains to assets already known or of little value.
    • Alternative Utility: For some creditors, the primary utility of initiating the procedure is not necessarily the expectation of discovering substantial hidden wealth, but rather to use the summons and the formal court process as leverage to pressure the debtor into negotiating a voluntary payment plan.

International Comparisons and Calls for Reform in Japan

The perceived shortcomings of Japan's system become more apparent when compared to asset disclosure and debtor examination mechanisms in some other developed nations:

  • Stronger Measures in Other Jurisdictions:
    • Germany: The German system (historically involving an Offenbarungseid, now an affirmation in lieu of an oath) includes provisions for the detention of a debtor (for up to six months) who refuses to comply with disclosure obligations. Furthermore, debtors who fail to comply or whose assets are insufficient can be entered into a public debtor registry, which can have significant negative consequences for their creditworthiness and ability to conduct business.
    • France: While not having an identical procedure, France possesses a "property inquiry system" (procédure de recherche des informations) which allows creditors, often through a judicial officer (huissier de justice), to obtain information about a debtor's assets, bank accounts, employment, and address directly from financial institutions, public registries, and employers.
    • United States / United Kingdom: In common law jurisdictions, post-judgment discovery procedures can be quite robust. Debtors can be compelled to produce documents and testify under oath about their assets. Failure to comply with court orders for disclosure can lead to contempt of court proceedings, which may result in significant fines or even imprisonment. Making false statements under oath can lead to perjury charges.
    • South Korea: Following its 2002 Civil Execution Act, South Korea implemented a more potent property disclosure system. This includes a debtor registry for non-compliant or judgment-proof debtors and a "property inquiry system" enabling creditors (after an initial unsuccessful disclosure by the debtor) to directly query public bodies and financial institutions about the debtor’s assets.
    • China: Chinese courts have powers to restrict a non-compliant debtor's ability to leave the country or engage in high-value consumption.
  • Proposals for Strengthening the Japanese System:
    Recognizing these deficiencies, various proposals for reform have been advocated in Japan, often drawing inspiration from international practices:
    1. Enhanced Sanctions: A near-universal suggestion is to significantly strengthen the penalties for non-appearance, refusal to disclose, or making false statements. This could involve increasing the monetary fines substantially or, more controversially, introducing criminal sanctions (e.g., for perjury) or a non-criminal form of detention for willful non-compliance, similar to the German model.
    2. Introduction of a Third-Party Property Inquiry System (財産照会制度 - Zaisan Shōkai Seido): This is a widely supported proposal. It would empower creditors, likely through the court, to directly request information about a debtor's assets (bank accounts, employment, real estate holdings, etc.) from third parties such as financial institutions, employers, tax authorities, and public registries. These third parties would be under a legal obligation to provide the information, overriding general duties of confidentiality in this specific context.
    3. Establishment of a Debtor Registry/List (債務者目録 - Saimusha Mokuroku): Similar to systems in Germany and South Korea, this would involve creating a publicly accessible or creditor-accessible list of debtors who have failed to fulfill their disclosure obligations or whose disclosed assets are insufficient to meet their judgment debts. The potential negative impact on a debtor's credit rating and ability to engage in commerce could serve as a powerful incentive for compliance.
    4. Leveraging the "My Number" System: Japan's national identification number system (マイナンバー - Mai Nanbā) has been suggested as a potential tool for more effective asset tracing in the future. If its use could be extended (currently restricted by privacy laws) to link individuals to bank accounts, real estate, and other financial assets, it could greatly simplify the process of identifying a debtor's property. However, this raises significant privacy concerns that would need careful balancing.
    5. Relaxing the "Non-Success Requirement": Making it easier for creditors to access the property disclosure procedure without first having to undertake what might be a demonstrably futile prior execution attempt.
    6. Expanding the Scope of Disclosure: Requiring debtors to disclose not only their current assets but also significant asset transfers made within a certain period (e.g., the preceding three years) before the disclosure. This could help creditors identify assets that may have been fraudulently conveyed to evade execution.

Conclusion

While Japan's Property Disclosure Procedure was introduced with the laudable goal of assisting creditors in overcoming the challenge of undisclosed or hidden assets, its current design and, in particular, its weak enforcement sanctions, have rendered it a less effective tool than many practitioners and commentators believe is necessary. Compared to the more robust asset discovery and disclosure enforcement mechanisms found in several other leading economies, the Japanese system appears relatively conservative in its approach to compelling debtor cooperation and accessing information from third parties.

There is a clear recognition among legal experts and reform advocates in Japan that for the civil execution system to maintain its credibility and provide meaningful recourse for judgment creditors, the tools for asset discovery must be strengthened. The ongoing discussions and legislative proposals, including the potential introduction of a third-party property inquiry system and more stringent sanctions, reflect a move towards enhancing the practical utility of asset disclosure, recognizing that without effective means to find a debtor's property, even the most righteous judgment can remain an unfulfilled promise.