This Cabinet Ordinance is aimed at partially amending the Enforcement Order for the Act on Special Measures for Industrial Revitalization, in order to make the implementation period of the Act on Special Measures for Industrial Revitalization, which is to be amended pursuant to the "Law to Partially Amend the Act on Special Measures for Industrial Revitalization and Other Laws to Foster Innovation in Industrial Activities in Japan," end on the last day of March 2010, just as the crisis response operations to meet the financial crisis do, and to provide for the replacement of terms needed for the implementation of the system.

Article 24.2 of the Act on Special Measures for Industrial Revitalization (Law No. 131 of 1999, hereinafter the "Industrial Revitalization Law"), which is to be amended pursuant to the "Law to Partially Amend the Act on Special Measures for Industrial Revitalization and Other Laws to Foster Innovation in Industrial Activities in Japan," is to come into force as soon as it is promulgated, and some of the matters needed for the entry into force of the article are entrusted to Cabinet Ordinances.

This draft Cabinet Ordinance was formulated to amend the Enforcement Order for the Act on Special Measures for Industrial Revitalization and provide for the replacement of terms needed for the entry into force of Article 24.2 of the Industrial Revitalization Law.

Future schedule

April 30, 2009: Promulgation and entry into force
( The same day as the promulgation of the Law to Partially Amend the Industrial Revitalization Law and the entry into force of Article 24.2 of the Industrial Revitalization Law)

Issues related to Article 4.2

Article 24.2 of the Industrial Revitalization Law stipulates that when designated financial institutions provide financing necessary for business operators with business restructuring plans authorized under the Industrial Revitalization Law to carry out measures according to these plans, the Japan Finance Corporation (JFC) can cover part of losses resulting from such financing. The financing by designated financial institutions eligible for such compensation by the JFC is limited to one provided during a period when such financing is generally regarded as difficult due to disruption to the financial order in Japan and abroad. This period of financing difficulties applies to the present, when the financial order in Japan and abroad has been thrown into a turmoil arising from the subprime loan problem. Considering that the implementation period of the "Emergency Measures to Defend People’s Daily Lives" (approved by the Ministerial Meeting on Economic Measures on December 19, 2008) ends on the last day of FY 2009, the period defined by the Cabinet Ordinance is to be "from the date of entry into force of this Cabinet Ordinance to March 31, 2010."

Issues related to Article 4.3

Article 24.2, Paragraph 2 of the Industrial Revitalization Law stipulates that financing provided by designated financial institutions prescribed in Article 24.2, Paragraph 1 of the Industrial Revitalization Law (hereinafter "crisis response financing") be considered as crisis response operations under Article 2, Item 5 of the Japan Finance Corporation Law (Law No. 57 of 2007, hereinafter "JFC Law"), and that compensation for losses under the same paragraph (hereinafter "financing facilitation operations") be considered as operations spelled out in Article 11, Paragraph 2, Item 2 of the JFC Law and be treated pursuant to the provisions of the JFC Law.

This article provides for the replacement of terms for the provisions of the JFC Law that will cause inconsistency if applied as is to crisis response financing and financing facilitation operations.

(1) Replacement of terms for Article 16, Paragraph 3 of the JFC Law

Under Article 16, Paragraphs 2 and 3 and Article 5 of the JFC Law, financial institutions planning to provide crisis response financing can become designated only when the work regulations on crisis response operations and crisis response financing they have developed are decided as appropriate by the competent minister of the JFC Law.

However, "loans of specific funds" under Article 16, Paragraph 3 of the JFC Law naturally do not include crisis response financing. The amendment provides for the necessary replacement of terms to clarify this.

(2) Replacement of terms for Article 21, Paragraph 1, Item 2 of the JFC Law

Article 21 of the JFC Law stipulates that the JFC should conclude an agreement with designated financial institutions before conducting activities to facilitate crisis response operations, including financing facilitation operations. Since transactions relating to financing facilitation operations will never involve "cases in which debts are not discharged" or "the amount of non-dischargeable debts" under Article 21, Paragraph 1, Item 2 of the JFC Law, this provision cannot be applied to the transactions as is. The amendment provides for the necessary replacement of terms concerning this matter.

Since it is desirable that the specific method of calculating the compensation amount is separately defined by the competent minister of the JFC Law, pertinent provisions are included in the provisions for the replacement of terms.

(3) Replacement of terms for Article 21, Paragraph 1, Item 3 of the JFC Law

In transactions relating to financing facilitation operations, when the JFC covers stock appraisal losses that a designated financial institution suffers in association with its financing, the pertinent stocks are held by the institution even after compensation. In such a case, pursuant to Article 21, Item 3 of the JFC Law, to reduce the burden of the JFC, the designated financial institution should be obliged to make efforts to dispose of the stocks at appropriate prices in light of their market prices at the time of disposal and the estimated disposal prices. The amendment provides for the necessary replacement of terms concerning this matter.

(4) Replacement of terms for Article 21, Paragraph 1, Item 4 of the JFC Law

When a designated financial institution disposes of stocks pertinent to the financing pursuant to Article 21, Paragraph 1, Item 3 of the JFC Law and the appraised value obtained by the calculation of the appraisal loss (the value obtained by subtracting the losses under Paragraph 2 of the same article from the amount financed) is less than the amount equivalent to the assets obtained by the disposal, there is duplication of the recovery of losses by the designated financial institution. In such a case, the designated financial institution should be required to return the duplicate amount of recovery to the JFC pursuant to Article 21, Paragraph 1, Item 4 of the JFC Law. The amendment provides for the necessary replacement of terms concerning this matter.

Since it is desirable that the specific method of calculating the payment amount is separately defined by the competent minister of the JFC Law, pertinent provisions are included in the provisions for the replacement of terms.

(5) Replacement of terms for Article 22, Paragraph 1 of the JFC Law

Under Article 22, Paragraph 1 of the JFC Law, the competent minister must define the "implementation procedure," a set of items that should be followed for the reliable and smooth implementation of crisis response financing and financing facilitation operations appropriate to the crisis being faced, and the JFC and the designated financial institutions must follow the implementation procedure in conducting these operations.

Article 22, Paragraph 1 of the JFC Law stipulates that the implementation procedure be defined when authorization is given by the competent minister of the JFC Law pursuant to Article 11, Paragraph 2 of the JFC Law. However, no such authorization is given with regard to crisis response financing, and therefore no implementation procedure will be defined for crisis response financing if this provision is applied as is. The amendment provides for the necessary replacement of terms concerning this matter.

(6) Replacement of terms for Article 22, Paragraph 3 of the JFC Law

When the competent minister defines the implementation procedure for crisis response financing and financing facilitation operations, the minister should be required to notify the designated financial institutions and the JFC of the details of the implementation procedure pursuant to Article 22, Paragraph 3 of the JFC Law, in order to ensure that the JFC and the designated financial institutions carrying out operations in line with the procedure, as well as the users of this system, are aware of the details of the procedure. The amendment provides for the necessary replacement of terms concerning this matter.

April 24, 2009

Industrial Finance Division, Economic and Industrial Policy Bureau