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 address this gap, its adoption in Japan faces significant barriers—including entrenched protection of secured credit, a bank-centered financial system, and a traditionally 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. Without meaningful priority protection, incentives to provide new liquidity are likely to erode further. This study proposes a “risk-fronting restructuring model” that activates financing before judicial proceedings through contract design, collateral restructuring, and out-of-court reorganization. The model is functionally compared with a limited statutory priority approach, with analysis focusing on differences in financing costs, risk allocation, and restructuring efficiency, aiming to design a DIP financing framework suitable for Japan under the EVC while demonstrating the critical need for introducing priority rights in DIP financing. Keywords: DIP financing; Super-priority; Priming lien; Corporate restructuring; Japan
Biography
I am a PhD student at the Graduate School of Law, Kobe University, Japan, specializing in corporate bankruptcy and restructuring. I earned my bachelor's degree in Law from Beijing Institute of Technology, China, and my master's degree in Law from Kobe University, Japan, which I completed in March 2025. In April 2025, I was awarded a three-year research grant from the Japan Science and Technology Agency (JST) under the Next-Generation Researchers Challenge Project (Grant Number: JPMJSP2148), supporting both research and professional development.
