1. © 2004 IRCJ ． All rights Reserved IRCJ Industrial Revitalization Corporation of Japan Professor Dr. Shinjiro Takagi Chairman Industrial Revitalization Commission Restructuring Approaches Used in Japan The World Bank Conference: Corporate Restructuring : International Best Practices March 22-24, 2004, Washington, D.C.

2. © 2004 IRCJ ． All rights Reserved 1 Introduction IRCJ 1.Statutory Reorganization Proceedings 2.The Guideline Regarding Out Of Court Workout 3.Industrial Revitalization Corporation of Japan (IRCJ)

3. © 2004 IRCJ ． All rights Reserved 2 1. Statutory Reorganization Proceedings IRCJ  1922 : Composition Law  1938 : Corporate Arrangement Proceeding Under Commercial Code (Rarely used now)  1951 : Corporate Reorganization Law  1967 : Corporate Reorganization Law reformed  1999 : Civil Rehabilitation Law (Popular)  2003 : Corporate Reorganization Reform Law (Popular)

4. © 2004 IRCJ ． All rights Reserved 3 IRCJ 1. Statutory Reorganization Proceedings  Civil Rehabilitation Proceeding - Mainly used for small and mid sized enterprises （ SMEs ） - DIP in principle - Secured right cannot be impaired without consent of each secured creditor  Corporate Reorganization Proceeding - Mainly used for bigger corporations - Trustee (exception: Court can appoint an incumbent manager as an trustee) - Secured right can be changed by reorganization plan accepted by majority resolution - Usually 100% dilution of equity (wiping out shareholders’ rights)

5. © 2004 IRCJ ． All rights Reserved 4 IRCJ  Japan’s unique culture - Wide use of promissory notes - Main bank group system - Vestige of stigma 1. Statutory Reorganization Proceedings

6. © 2004 IRCJ ． All rights Reserved 5 IRCJ  2003 The Guideline Regarding Out of Court Workout was established by National Bankers Association and other relevant organizations  Workout between a debtor and financial institutions not including trade creditors - Filing proposed plans with a main bank by a debtor - Notice of standstill to financial institutions - 1 st creditors’ meeting within 2 weeks after the notice Unanimous consent to the standstill Set standstill period (maximum 3 months) Appoint professional advisors Appoint creditors’ committee (optional) Approve DIP finances 2. The Guideline Regarding Out Of Court Workout

7. © 2004 IRCJ ． All rights Reserved 6 IRCJ  Advisors’ report regarding fairness and feasibility of the plan  Solicitation to accept the plan  2 nd creditors’ meeting Unanimous consents to the plan  Contents of the plan DES and/or partial debts forgiveness Eliminate negative net worth within 3 years Recover profitability within 3 years Equity dilution Replacement of the managers 2. The Guideline Regarding Out Of Court Workout

8. © 2004 IRCJ ． All rights Reserved 7 IRCJ  1996 - The Resolution & Collection Corporation (RCC) was established  April 2003 - The Industrial Revitalization Corporation Of Japan (IRCJ) was established  The goal of the IRCJ is to reduce NPLs by half (approximately 4%) before March, 2005, revitalizing troubled corporations at the same time 3. Industrial Revitalization Corporation of Japan

9. © 2004 IRCJ ． All rights Reserved 8 Non-Main Banks IRCJIRCJ Entry Exit Indebted Company Main Bank Non-Main Banks Restructuring Plan Revived Company Loan Assets Purchase Sale DES Evaluation Banks New Money Private Equity Fund Investment Banks Strategic Sponsors 3. Industrial Revitalization Corporation of Japan : Scheme IRCJ Non-Main Banks Banks Please refer to the brochure for the details.

10. © 2004 IRCJ ． All rights Reserved 9 3. Industrial Revitalization Corporation of Japan : Feature IRCJ  Executives and members of the board of directors and IRCJ Commission are under the approval of the ministers in charge.  The IRCJ can raise money as much as 10trillion Japanese Yen with the government guarantee to purchase loans and infuse new money.  The IRCJ must exit within three years after purchasing the loans.  Total lifetime of the IRCJ is limited to five years.  Sole shareholder is the Deposit Insurance Corporation (DIC).  All the financial institutions in Japan are the capital contributors.

11. © 2004 IRCJ ． All rights Reserved 10 IRCJ ■ Other matters related to the IRCJ  Decentralized Asset Management Corporation which are subsidiaries of banks, were set up after the starting of the IRCJ  Consulting Committees to revitalize SMEs were established in every region all over Japan after the starting of the IRCJ  Conversion to statutory reorganization proceedings - Treatment of trade creditors (equality rule)  Human Resources Restructuring advisors and turnaround managers 3. Industrial Revitalization Corporation of Japan

12. © 2004 IRCJ ． All rights Reserved Balance of Non- and Poor-Performing Loans in Banks across the Nation Trillion Yen (from the Nikkei Paper ’03/12/27) Chart 1

13. © 2004 IRCJ ． All rights Reserved 12 Balance and Rate of Non- and Poor-Performing Loans among Major Banks Trillion Yen (%) (from White Paper on the Economy and Public Finance 2003) 7.2% 20.2 Chart 2

14. © 2004 IRCJ ． All rights Reserved 13 Balance of Non- and Poor-Performing Loans Trillion Yen (from the Nikkei Paper ’03/12/30) Chart 3

15. © 2004 IRCJ ． All rights Reserved 14 Financial Support for Major Construction Companies in the Past Major BanksMitsui SumitomoMizuho CorporateResona Major Construction Company Kumagai- Gumi Mitsui-SumitomoFujitaAsukaHazama Haseko Corporation 19976,4001,049 19991,200837 20001,469 20014,500 1,420 (ex-Mitsui) 1,636 2002 600 (ex-Sumitomo) 3,000 ～ 4,000 8001,500 20033,000over 500300 over 1,000 Total7,5002,520 4,200 ～ 5,200 7,5002,0495,442 100 million Yen (from the Nikkei Sangyo Paper ’03/11/28) Chart 4

16. © 2004 IRCJ ． All rights Reserved 15 IRCJ Industrial Revitalization Corporation of Japan Inquiries : Corporate Planning Office +81-3-6212-6400 (Switchboard) Home Page: www.ircj.co.jp www.ircj.co.jp