Enforcement measures

Repossession following lease termination

Outline the basic repossession procedures following lease termination. How may the lessee lawfully impede the owner’s rights to exercise default remedies?

Japan is a jurisdiction where no self-help remedy per se is permissible. If the lessee refuses to redeliver the aircraft to the lessor even following lease termination, the lessor must commence a court procedure against the lessee to repossess the aircraft from the lessee.

To prevent the lessee from transferring its possession of the aircraft to a third party to frustrate the repossession thereof, the lessor may petition the competent court for a provisional remedy or injunction called a provisional disposition, which prohibits the lessee from transferring its possession of the aircraft to a third party. Although the required court fee is nominal, the court may require that the lessor post a deposit to cover the damage that may be incurred by the lessee. The court has discretionary power in determining if a deposit is required and the amount thereof. The lessee could impede the owner’s rights to exercise default remedies by arguing that the lease termination is not effective and that it still has the right to possess the aircraft.

Enforcement of security

Outline the basic measures to enforce a security interest. How may the owner lawfully impede the mortgagee’s right to enforce?

As mentioned in question 22, self-help is not permitted in Japan. If the owner and, if different, the operator are cooperative with the mortgagee, the mortgagee can sell the aircraft to a third party or retain it by itself and apply the sale proceeds (or the fair value) of the aircraft to the secured obligations if permitted in the mortgage agreement. Otherwise, the mortgagee needs to commence a court procedure to foreclose upon the mortgage by way of a public sale supervised by a court (a court sale). To commence a court sale procedure, the mortgagee must file an application for foreclosure of security interests with supporting documents (including an official transcript of entry of the aircraft registry). Once the court sale procedure commences, the court will order the court enforcement officer to deprive the certificate of registration, the certificate of airworthiness and other documents to be kept on board the aircraft to detain the aircraft and enable the court sale. Even before the application for the foreclosure, the mortgagee may petition the competent court to order the detention if it is probable that a court sale would be difficult without having detained the aircraft at that time. Unless an objection is made to the commencement order for a court sale, a court sale procedure may commence and the aircraft can be detained by way of an ex parte application.

In Japan, bankruptcy proceedings under the Bankruptcy Act (Act No. 75 of 2004), special liquidation proceedings under the Companies Act (Act No. 86 of 2005), civil rehabilitation proceedings under the Civil Rehabilitation Act (Act No. 225 of 1999) and corporate reorganisation proceedings under the Corporate Reorganisation Act (Act No. 154 of 2002) are the main insolvency proceedings. When being applied to a corporate entity, the former two proceedings aim to liquidate the entity and the latter two aim to rehabilitate or reorganise the entity. A mortgagor with a perfected aircraft mortgage may enforce its rights under the mortgage even after the commencement of bankruptcy, special liquidation or civil rehabilitation proceedings outside these proceedings. However, once corporate reorganisation proceedings commence, a mortgagee cannot foreclose upon the mortgage and will receive distributions in accordance with the reorganisation plan approved by the creditors’ meeting and the court.

The owner could impede the mortgagee’s enforcement rights by not cooperating with the mortgagee, which would make it difficult to foreclose upon the mortgage by a private sale even if foreclosure is permitted under the mortgage agreement. In that case, the mortgagee will need to commence a court sale procedure as mentioned above.

Priority liens and rights

Which liens and rights will have priority over aircraft ownership or an aircraft security interest? If an aircraft can be taken, seized or detained, is any form of compensation available to an owner or mortgagee?

Registered aircraft mortgages have priority in aircraft in accordance with the order of the registrations. A seller or repairer of an aircraft may have a statutory lien over the aircraft, but the priority of a statutory lien is below that of a registered mortgage on the same. On the other hand, a tax claim may have priority over a registered mortgage on an aircraft with respect to taxes that had been due prior to the date of registration of the mortgage. Therefore, it should be noted that, if an aircraft mortgage is created and perfected by an owner that is delinquent on taxes, such mortgage could be subordinate to the tax claims against the owner. Another lien having (de facto) priority over a registered mortgage is a possessory lien. A possessory lien under the Civil Code is the right to retain possession of property until the possessor receives full payment of the obligation having arisen with respect to such property. The Commercial Code also provides for another type of possessory lien, which arises on property owned by the debtor to secure an obligation arising through commercial transactions between merchants (including corporations) notwithstanding whether the obligation has arisen with respect to the property. Airport charges or repairer’s fees can be secured by these possessory liens arising on aircraft. A possessory lien has de facto priority in the subject property because the holder of a possessory lien may detain the property until the secured obligations owed to it are paid in full, even if a court sale is commenced and completed.

An aircraft will not be confiscated or requisitioned for use by the Japanese government except in certain unusual circumstances such as where the aircraft is used to engage in criminal acts. However, it could be possible for an unsecured creditor of the owner of the aircraft to attach the aircraft to collect its claims pursuant to the general enforcement proceedings, save where it is unlikely that there will be any excess above the secured creditor’s claims with respect to that aircraft (provided that registered mortgagees have priority over such unsecured creditors if the aircraft mortgage has been registered before the attachment).

Enforcement of foreign judgments and arbitral awards

How are judgments of foreign courts enforced? Is your jurisdiction party to the 1958 New York Convention?

A judgment rendered by a foreign court (including courts in England and New York) that is final and conclusive may be enforced by a Japanese court by obtaining an execution judgment for a judgment of a foreign court therefor if certain conditions are met. The required conditions are:

  • the foreign court’s jurisdiction over the relevant matter is recognised by an applicable law, order or treaty;
  • the respondent either has been served by summons and not by public notice or has appeared in the action in the foreign jurisdiction without receiving service thereof;
  • the judgment and the proceedings of the foreign court are not contrary to the public order or good moral doctrine in Japan; and
  • judgments of Japanese courts receive reciprocal treatment in the courts of the foreign jurisdiction concerned (in which respect, there are precedents that admitted such reciprocal treatment between Japan and England and New York, respectively).

Japan has ratified the New York Convention (1958).