For individuals, bankruptcy starts when the person is unable to pay a debt and the time for payment has lapsed. For corporations the standard is a little different. Corporations may file for bankruptcy when they are unable to pay, similar to a normal person, or when they are in a state of “balance sheet insolvency.” Balance sheet insolvency is when the corporation is unable to make payments even by selling its assets.
It is always possible that a debtor company may file for bankruptcy if confronted with a debt that it cannot pay. However, this does not necessarily mean that the creditor will not be able to collect at lease part of the debt. A creditor should be given proper notice before the start of a bankruptcy hearing and will have a chance to claim part of the bankrupt debtor’s assets.
The Japanese the Commercial Code specifies a statutory interest rate of 6% annual to be applied between merchants when no interest rate is specified in the contract. If two business partners agree to a loan in their contract, but neglect to specify an interest rate, the court will automatically set the rate at 6%.
Compulsory execution allows a court to exercise control over an individual’s assets and forcibly transfer them from one party to another, providing a powerful tool to force debtors to pay off an outstanding debt. However, in situations where it is used unjustly, it can cause great harm to innocent parties. Therefore, in order to prevent this from happening, compulsory execution orders may be appealed by the defending party.