An advisory panel to the Minister of Justice in Japan has recommended a revision of the commercial code to simplify merger and corporate spin-off procedures in Japan. Implementation, which is expected in 2006, aims to speed up the restructuring of corporate Japan.
Currently, an incorporated company may merge without a shareholder resolution provided shares allocated by the new company to the shareholders of the company being acquired amount to 5% or less of the total outstanding shares. The proposed new legislation will ease this to 20% of outstanding shares.
The panel also plans to revise the legal framework on corporate spin-offs. Currently, an incorporated company is allowed to spin off divisions after gaining board approval only if assets separated from the parent firm amount to 5% or less of its total assets. The panel intends to raise this threshold to 20% as well.
A spokesman for Sumitomo Mitsui Banking Corporation (SMBC) in Tokyo says the proposed changes are highly significant. “In Japan, the basis of decision-making criteria has been shifting from the general meeting of stockholders to the Board of Directors,” he says. “Corporate governance has gained attention with the relaxation of the commercial codes to allow firms a mechanism to progress more rapid decision-making on business reorganization. It was industry’s request that the commercial code be revised to enable swift reorganization.”