fdi and corporate governance in japan michael ryland partner 21 july 2008 204733349_2 geread dooley...
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![Page 1: FDI and Corporate Governance in Japan Michael Ryland Partner 21 July 2008 204733349_2 Geread Dooley Lawyer](https://reader036.vdocuments.site/reader036/viewer/2022062518/56649cc35503460f9498c807/html5/thumbnails/1.jpg)
FDI and Corporate Governance in Japan
Michael RylandPartner 21 July 2008
204733349_2
Geread DooleyLawyer
![Page 2: FDI and Corporate Governance in Japan Michael Ryland Partner 21 July 2008 204733349_2 Geread Dooley Lawyer](https://reader036.vdocuments.site/reader036/viewer/2022062518/56649cc35503460f9498c807/html5/thumbnails/2.jpg)
SLIDE 2 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Topics
• FDI regulation in Japan
• Foreign Exchange and Foreign Trade Law
• FDI case study
• AREITs in Japan
• Takeovers law in Japan
• Takeover Defence Guidelines - Regulatory response
• Bulldog Sauce case – Supreme Court's stance
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SLIDE 3 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
FDI regulation in Japan
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SLIDE 4 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
A few FDI facts on Japan
0102030405060708090
100
Inbound FDI as % of GDP
Countries
• US$28.8billion net inbound FDI in 2007
• Japanese Government seeking to double inbound FDI to 5% of GDP by 2010
• US$50 billion net outbound FDI in 2006
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SLIDE 5 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Foreign Exchange and Foreign Trade Law (FEL)
• 「外国為替及び外国貿易法」(「外為法」)"Gaikoku - Kawase - Oyobi - Gaikoku - Boeki - Ho" ("Gaitame - Ho")
• Deals with both "Outward Direct Investments" and "Inward Direct Investment"
• "Inward Direct Investment" covers almost all investment activities of foreign company in Japan
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SLIDE 6 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
1998 amendments to FEL
1. Change to approval process: from "Prior Notification" to "Post Facto Report"
2. Change of name: from "Foreign Exchange and Foreign Trade Control Law" to "Foreign Exchange and Foreign Trade Law"
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SLIDE 7 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Three types of approval/ notification regulation:
Post Facto Report
Prior Approval
Prior Notification
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SLIDE 8 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Example - acquiring shares in a Japanese company• Target: Japanese company established in
Japan ("Kabushiki Kaisha")
• Foreign investor: foreign company
• "Post Facto Report" or "Prior Notification"?
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SLIDE 9 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Exemptions to both Prior Notification and Post Facto Report
1. The foreign investor acquires shares from another foreign investor; or
2. The number of shares held by a foreign investor (and certain affiliated entities) as the result of the acquisition is less than 10% of total shares ("Percentage Test")
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SLIDE 10 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Questions to be examined:
Q1. "Percentage Test":
• less than 10% → no filing required
• 10% or more → go to Q2
Q2. "Industry Test" and "Country Test":
• If a Non-Sensitive Industry and Eligible Country → "Post Facto Report"
• If A) Sensitive Industry and/ or B) Ineligible Country → "Prior Notification"
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SLIDE 11 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Other requirements:• "Law Concerning Prohibition of Monopoly and
Preservation of Fair Trade"「独占禁止法」( "Dokusen - Kinshi - Ho" ) or「独禁法」( "Dokkin - Ho")
• "Securities and Exchange Law" 「証券取引法」( "Shouken - Torihiki - Ho" ) or「証取法」( "Shoutori - Ho")
• Note - "Financial Instruments and Exchange Law" amended the "Securities and Exchange Law" in 2006
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SLIDE 12 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
A-REITS in Japan
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SLIDE 13 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Investing in Japanese real estate
Currently 4 ASX listed property funds with 100% Japanese real estate assets
• Babcock & Brown Japan Property Trust
• Challenger Kenedix Japan Trust
• Galileo Japan Trust
• Rubicon Japan Trust
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SLIDE 14 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Investment model
Responsible Entity
"Trust" Lender
Custodian
Investors (Retail / Wholesale)
Asset
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SLIDE 15 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Investment issues• Acquire title to land?• Acquire title to trust beneficiary certificate?• Investment vehicles: TK, TMK
• Acquire equity?• Board positions? NB residency
• Management arrangements• FIEL licensing implications
• Borrowing (banks, bank accounts, security)• Entering into contracts• Making distributions
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SLIDE 16 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Takeovers in Japan
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SLIDE 17 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
An overview - "Streamlining the Market for Corporate Control: A Takeovers Panel for Japan?" • Japanese takeover activity on the rise
• Catalyst: Takafumi Horie and the Livedoor case
• Unintended consequences
• Corporate Japan – "poison pill" defences
• Japanese government – "Guidelines Regarding Takeover Defences for the Purpose of Protection and Enhancement of Corporate Value and Shareholder's Common Interests" ('Takeover Defence Guidelines') (May 2005)
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SLIDE 18 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
An overview - "Streamlining the Market for Corporate Control: A Takeovers Panel for Japan?"
• "Takeovers Panel" in Australia
• Primary forum for resolving takeover disputes
• Aims to bring speed, specialist expertise and commercial pragmatism to the dispute resolution process
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SLIDE 19 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
"Japanese corporate
environment is ripe for an innovation
such as a Takeovers Panel based on the Australian model."
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SLIDE 20 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Japanese takeover activity on the rise
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SLIDE 21 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Takeover Defence Guidelines: the government’s response (1)
• Recognises pros and cons of M&A
• Endorses US-style defensive measures to avoid market damaging M&A activity
• Implicit approval of Delaware takeover jurisprudence, home of the poison pill defence
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SLIDE 22 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Takeover Defence Guidelines: the Government’s Response (2)
• Three main principles:
1.Enhance ‘corporate value’ and common interests of all shareholders
2.Disclosure to shareholders
3.Conform to Japanese law
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SLIDE 23 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Reliance on missing infrastructure? (1)
• No guidance on timing of poison pills
• Who monitors corporate management?
• The Policemen:
• Shareholders
• Independent directors
• Courts
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SLIDE 24 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Reliance on missing infrastructure? (2)
• Shareholders
• New presence - foreign share ownership from 6.3% in 1993 to 23.7% in 2005
• Shareholder activism on the rise
• But…
• Financial institutions and business corporations still hold 54.8% of all shares on the TSE
• Since 2005 - 353 Japanese companies had sought approval for defensive measures at shareholders meetings
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SLIDE 25 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Reliance on missing infrastructure? (3)
• Independent Directors
• Still in its infancy – 2002 Commercial Code
• Limited impact?...
• Definition of 'independent' director
• Optional - between 2002 and 2004 only 3% of eligible firms, adopted the amendment
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SLIDE 26 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Reliance on missing infrastructure? (4)
• Courts
• Will need to build a body of law from the ground up
• Bulldog Sauce case….
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SLIDE 27 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Steel Partners v. Bulldog Sauce Co. Ltd (Bulldog Sauce Case)
• State of play before Bulldog Sauce case – very limited number of cases had considered defensive measures in takeover bids
• Rationale of the main decisions - management’s authority to manage the company comes from the shareholders through their appointment
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SLIDE 28 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Bulldog Sauce Case - Facts• 18 May 2007 - Steel launches takeover bid on
– offered 1,584 yen/ share to acquire100 per cent of Bulldog's shares.
• Bulldog and Steel exchange questions and comments in writing.
• Bulldog implement's a defensive measure – allocated stock acquisition rights with discriminatory terms against Steel.
• Bulldog also seeks endorsement by shareholders at AGM on 24 June 2007 - 83.4% of total shareholders approve.
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SLIDE 29 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Bulldog Sauce Case - Facts
• Steel sought preliminary injunctive relief
• Three Japanese courts reviewed and decided the case from the viewpoints of whether such allocation:
(i) conflicts with the principle of equal treatment of shareholders (kabunushi byodo no gensoku); and
(ii) constitutes a materially unfair issuance (ichijirushiku fukosei na hakko).
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SLIDE 30 FDI AND CORPORATE GOVERNANCE IN JAPAN 21 JULY 2008
Supreme Court Decision
• All three courts allowed the takeover defence - but on quite different grounds.
• Supreme Court paid high regard to the resolution of the shareholders’ meeting in determining the necessity of the defensive measure.