Author
Ms ZHENG
Organisation/Institution
Graduate School of Law, Kobe University, Japan.
Country
JAPAN
Panel
Bankruptcy
Title
Restructuring Financing under Enterprise Value Charge: Incentive Challenges and Institutional Responses for DIP Financing in Japan
Abstract
In Japan, corporate bankruptcies and debt levels continue to rise, yet new financing in restructuring proceedings remains severely constrained. The absence of statutory super-priority for debtor-in-possession (DIP) financing subordinates it to existing secured claims, while pre-DIP financing, which holds priority in out-of-court reorganizations, faces destabilized priority upon entering judicial processes. This results in a systemic shortage of rescue funding. Although U.S.-style super-priority could theoretically address this gap, its adoption in Japan faces significant barriers, including entrenched protection of secured credit, a bank-centered financial system, and a negotiation-based legal culture. Complicating matters, the forthcoming Enterprise Value Charge (EVC), effective 2027, will further concentrate secured claims among fewer creditors, thereby heightening risks for prospective DIP financiers. Meanwhile, the series of legal reforms scheduled for 2027 will reshape restructuring finance. This study explores potential pathways to facilitating restructuring finance and examines their implications for financing costs, risk allocation, efficiency, and other aspects, with a view to identifying a feasible institutional framework. Keywords: DIP financing; Secured credit; Priority structure; Financing incentives
Biography
Xiaosheng ZHENG’s research focuses on corporate and restructuring law. After completing her LL.B. and LL.M., she was selected for the Japan Science and Technology Agency Excellent Doctoral Development Program in April 2025 and continued her doctoral studies at Kobe University, Japan. Her research on M&A and corporate restructuring is supported by Japan’s SME M&A Education and Research Center.
