19 Japan

Subject(s):

Banks and cross-border issues — Monetary obligations — Close-out netting — Contractual set-off — Insolvency set-off — Judicial set-off

This chapter provides an overview of the law of set-off in Japan. The Japanese Civil Code classifies set-off (along with performance, release, novation, and merger) as a mechanism for extinguishing an obligation. Set-off is not categorised as a right, altough it possesses certain characteristics that would warrant treating it as a right. The chapter first considers set-off between solvent parties, focusing on statutory and contractual set-off as well as the procedures for the exercise of set-off between solvent parties, before discussing set-off against insolvent parties. It examines legislation relevant to set-off, set-off in relation to the principle of equality among creditors, set-off against attaching creditors and against assignees, triangular set-off, and close-out netting of specified financial transactions. The chapter concludes with an analysis of cross-border issues relating to applicable law on statutory set-off, contractual set-off, and set-off in insolvency proceedings.