2011 Fiscal Year Final Research Report

An open question in the Japanese Civil Code, concerning the role of covenants in secured transactions for small or mid-sized business

Research Project

Project/Area Number	22730095
Research Category	Grant-in-Aid for Young Scientists (B)
Allocation Type	Single-year Grants
Research Field	Civil law
Research Institution	Waseda University
Principal Investigator	AOKI Noriyuki 早稲田大学, 法学学術院, 准教授 (30350416)
Project Period (FY)	2010 – 2011
Keywords	コベナンツ / ABL / アメリカ法 / 期限の利益 / 誠実原則 / 中小企業金融
Research Abstract	The secured financing with elaborate written covenants, which is popular in the US, are new for Japanese lenders and borrowers. The roles of covenants in secured transactions for small or mid-sized business are(1) to give the lender a leverage to negotiate with borrower who is in misconduct,(2) to diversify the lender's exit strategy by adding the refinancing and(3) to extend the borrower's credit on both the borrower's cash flow and borrowing based collateral. The rule of acceleration under Japanese Civil Code must be clarified to accept and enhance the usage of such secured financing scheme with covenants.