In my previous column I discussed the detailed steps in the very particular liquidation process. Once you are able to overcome the large obstacle that is the liquidation process, the end of the difficult procedure comes into view, so I would like to end this series of columns by touching upon the finalisation of the qualified acceptance process.

The Distribution Process

Once the liquidation of the estate has been completed, we enter the phase of distributing the proceeds of the liquidation. As mentioned in the second column of this series, because a public notice calling upon creditors to submit proof of their claims should have been published in the Official Gazette immediately after the qualified acceptance process was commenced, as well as separate notifications sent to those creditors who had already been identified requesting them to also submit their claims, the total amount of claims against the estate should be finalized by now. Of course, if the value of the estate realised from the liquidation process exceeds the value of the claims against the estate, the creditors are each paid the full amount they are owed, and the process is complete. On the other hand, if the value of claims exceeds the value of the estate, each creditor receives a payment that is proportional to the amount of each claim (Article 929 of the Civil Code). This is the general flow of the distribution process.

Issues Arising in the Distribution Process

Dealing with Conditional Claims
First, claims shall be treated as having fallen due and must be paid immediately, even if payment of a claim is not yet due (Article 930). Conditional claims and claims of indefinite duration are paid based on an evaluation by an appraiser who is appointed by the Family Court. Here again we see the appearance of that recurring character in the qualified acceptance process – the court-appointed appraiser. As well as the qualified acceptance process being a process of liquidating the estate’s assets, as a condition of that process, no debts of the estate may be left outstanding, so they are to be paid after performing an evaluation as at the time of repayment.

Processing Priority Right Claims
A creditor with a priority right (e.g. mortgage, lien) may be paid based on the value that their priority right secures, or they may exercise their priority right. These priority payments are made before the proportional repayment of other debts. As mortgages over real estate are usually settled by exercising the preferential purchase right and selling the property via private contract, thereby settling the creditor’s claim, more attention should be given to the processing of claims that are subject to liens or rights of retention.

Unsubmitted Claims
Claims that were not submitted during the defined period are not excluded in the same way that late claims are discharged in the bankruptcy process. A claim that was not submitted in time “may only be exercised over the residual assets” (Article 935). That is, it is sufficient to repay such claims with any assets that are left over after the full repayment of the claims that were submitted during the defined period. For example, if 5 million yen remains after all submitted claims have been paid, and a new claim is submitted by a creditor demanding 100 million yen, it is sufficient to pay the creditor 5 million yen.

Finalising the Process

There is no particular need to submit a notification to the Family Court that the process has been completed. The process is complete upon repayment of all claims that were submitted. After that, the residual assets are distributed amongst the heirs. It is very important to quantify the final value of the residual assets, in order to prepare against any future demands from a creditor who did not submit their claim during the defined period.

In Closing

That concludes my series of four articles that have introduced the practical aspects of the qualified acceptance process. Frankly speaking, it is a very troublesome and complicated process, as those readers who have read all four columns will have already appreciated. Legal knowledge is required and there are also special methods for calculating taxation obligations, while the court does not take any proactive action. I think that any individual attempting to undertake the process themselves will face many scenarios where they would not know what to do. However, I think using the process should be considered in inheritance cases where it is known that the deceased estate has a certain level of assets, but the possibility of hidden debts appearing cannot be excluded. If faced with a situation where you are unable to decide whether to unconditionally accept or renounce an inheritance, then it will be useful to keep in mind this third option of qualified acceptance.

(Translated from the original Japanese)