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HOME > Public Statements and Opinion Papers > Statements > Statement Regarding the Establishment of a Reconstruction Support Organization for Companies Suffering Damage from the Great East Japan Earthquake

Statement Regarding the Establishment of a Reconstruction Support Organization for Companies Suffering Damage from the Great East Japan Earthquake

A Reconstruction Support Organization for Companies Suffering Damage from the Great East Japan Earthquake (hereinafter referred to as the “RSO”) was established on February 22, 2012 and will commence its operations on March 5, 2012, amid ever increasing expectations and hopes among the people of the disaster-stricken areas toward the RSO. After having long been appealing the necessity for new legislation aimed at launching supportive measures for companies suffering damage from the disaster, we, the Japan Federation of Bar Associations (“JFBA”), would like to join the people in the affected areas in welcoming the eagerly-awaited commencement of operations of the RSO.

 

However, the road lying ahead for the RSO is in no sense smooth. The tremendous earthquake and colossal tsunami in the aftermath of the quake caused severe damage to the business assets of the disaster-stricken companies and completely destroyed railways, roads, bridges, harbor facilities, steel towers and other social infrastructure of the region struck by the disaster. Furthermore, the radioactive contamination caused by the nuclear accident gave rise to harmful rumors that have further worsened the situation surrounding those companies already suffering the damage from the disaster. Under such extraordinary and extreme circumstances, we are forced to say that it is doubtful as to whether any success could be brought to the operations of the RSO if it were to be bound by the usual standards of judgment relating to the revitalization of such businesses under a normal economic situation. There are numerous problems that must be overcome in order to ensure that the RSO functions as expected and that as many companies damaged by the disaster as possible will be reconstructed under the support of the RSO. Chief among them, the JFBA considers the following points to be of the utmost significance.

 

First, the structures of the RSO must be properly organized:

 

It is estimated that the number of companies damaged by the disaster that are in need of the support that can be offered by the RSO will reach 40,000, and they are mainly located in the coastal areas which incurred severe damage as a result of the tsunami. Thus, it is vital that a plentiful number of consultation counters be opened within the “devastated areas” along the coast and that a system be secured to facilitate the companies damaged by the disaster to easily visit those counters to receive supportive consultations whenever necessary. An early enhancement in the number of reconstruction consultation centers offering initial consultation services and in the number of experienced consultants is strongly desired. In particular, it will be of great importance to make available specialists to whom the disaster-stricken companies can go to for advice, regardless of whether this occurs before or after the decision is given on each specific case as to whether support services will be offered toward reconstruction. It is necessary for the RSO to keep working to enhance a mechanism as necessary whereby the attorneys/lawyers, CPAs, tax attorneys, small and medium enterprise management consultants and other professionals working in the coastal areas may be mobilized not only as regular employees or contract workers but also as non-regular employees who may be employed on a part-time, commission or temporary basis in order to broadly offer support services to accommodate the needs for revitalization of disaster-stricken companies in such coastal areas.

 

Secondly, as has already been pointed out in the following JFBA Opinion Paper issued on February 21, 2012 entitled “Opinion Paper Concerning the Draft Standard of the Provision of Support by the Reconstruction Support Organization for Companies Suffering Damage from the Great East Japan Earthquake,” it is necessary to ensure that the criteria for the provision of support and the scope of authority given to the RSO are operated in an appropriate manner.

 

If, under such extraordinary circumstances as mentioned earlier, the standards for the provision of support are applied strictly pursuant to their stated rules, we cannot deny the possibility that the scope of the companies eligible for support from the RSO may be narrowed in some instances. “The Act on the Reconstruction Support Organization for Companies Suffering Damage from the Great East Japan Earthquake (the “RSO Act”)” states, in Article 1 thereof, that the purpose of the RSO is “to sustain economic activities in the regions stricken by the Great East Japan Earthquake by preventing an outflow of the businesses and population from these areas to outside the disaster affected areas, thereby facilitating the revitalization of the local economy,” and “to support reconstruction while alleviating the burden of debts and obligations through such operations, namely, purchasing certain loan claims held by financial institutions, etc.” Moreover, in relation to setting the standards for the provision of support, the RSO Act also provides, in Article 18, Paragraph 3 thereof, that, “in light of the fact that many business operators in the disaster-stricken regions suffered tremendous damage to the assets they had been using for their businesses as a result of a cause not attributable to their own responsibility, proper attention should be given to providing as many business operators as possible with opportunities for reconstructing their businesses.”

 

In line with the purport of the Act, the standards for the provision of support, to the extent that they have been established without taking sufficient time for consideration, should be put into practice with due flexibility. At the same time, the RSO should not hesitate to review the standards themselves in a timely manner. If it is excessively self-restraining in exercising its authority in relation to the standards of the provision of support and if the support thus fails to reach those in need, the significance of the RSO’s existence itself will then be questioned. In order to avoid such a failure in pursuance of its intended aim, it is strongly requested that all relevant parties not fail to make every effort possible to boldly carry out their mission of providing necessary support where needed and to, from time to time, review the standards for the provision of support in a timely manner.

 

Thirdly, the financial institutions should cooperate with the RSO when it intends to purchase certain loan claims from them and appropriately supply new funds to the disaster-stricken companies.

 

In order to prevent any moral hazard on the part of the financial institutions, the RSO Act provides that the purchase prices of the loan claims shall not exceed their fair market values. However, such issue actually arose during the course of discussions when the prefectural industrial reconstruction organization was established in Iwate Prefecture where certain financial institutions requested that the loan claims held by them be purchased at high prices, and a similar issue may arise under the RSO Act.

 

As regards the support for disaster-stricken financial institutions, a total of 215.4 billion yen of public funds has already been infused to the three regional banks, six Shinkin banks and two credit cooperative associations pursuant to the “Act on Special Measures for Strengthening Financial Functions.” The purpose of this capital infusion was not only to protect the financial system but also to protect the employment and livelihoods of the people in the disaster-stricken regions and to support the revitalization of such regions by promoting the revitalization of disaster-stricken business operators, namely, restoring the financial intermediary function within the region and encouraging the financial institutions to actively extend loans while properly taking risks. Financial institutions must always be conscious that they are given special support with public funds in priority to other companies and must not forget that they are given such special treatment only because they need to fulfill their functions and responsibilities as financial institutions (for the sake of the entire community.) The whole nation expects them to refrain from engaging in certain actions, such as deliberately pursuing an increase in the prices of the loan claims resulting in it being unfeasible for the RSO to provide support where it is most needed or hesitating to extend new loans to such disaster-stricken companies. This is something that every single employee of the financial institutions always has to keep in mind. We specifically expect those financial institutions located in the disaster-stricken regions to have high morale as key players in the reconstruction of such regions and to commit to contributing to the regional economic society by positively responding to the RSO’s offers to purchase their loan claims or by proactively extending new loans.

 

The JFBA has always appreciated the importance of the RSO from its legislative phase and supported the establishment of its mechanism and management of the organization. The JFBA is determined to continue to extend its cooperation and support to the RSO in the hope that it can successfully accomplish its purposes and that many disaster-stricken companies can be reconstructed through the support of the RSO.

 

 

March 3, 2012
Kenji Utsunomiya
President
Japan Federation of Bar Associations