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News Navigator: What does JAL's 'legal liquidation' mean?
The Mainichi answers some common questions readers may have about the planned liquidation of financially-troubled Japan Airlines (JAL).
Question: What is the "legal liquidation" that JAL is set to undergo?
Answer: Legal liquidation refers to bankruptcy procedures based on the law, such as the Corporate Rehabilitation Law and Civil Rehabilitation Law. Such procedures, however, do not mean that the company in question will vanish. The two laws are aimed at resuscitating companies through debt waivers and the selection of new operators and sponsors, among other measures. Therefore, procedures based on these laws are called a rebuilding-oriented liquidation. JAL is expected to be liquidated under the Corporate Rehabilitation Law.
If a company is too ailing to be rebuilt, the Bankruptcy Law is applied, distributing the company's assets to creditors before folding the company.
Q: JAL and its major lenders had been talking about private restructuring measures. What's the difference between such measures and legal liquidation?
A: Private restructuring measures refer to joint efforts among a company, its lenders and other parties to reduce the burden of the company through debt waivers, and to work out new management plans. Since such measures do not invoke bankruptcy so much as legal liquidation does, a company can protect its reputation to a certain degree. However, it is uncertain if a company can effectively rebuild itself under such measures, which are legally nonbinding when it comes to implementing new management plans.
Q: Why does JAL need to undergo legal liquidation?
A: Measures that have so far been taken to rehabilitate JAL through loan expansion and restructuring apparently failed to work. Since banks were opposed to drastic debt waivers, while JAL, which used to be a semi-governmental airline, was not implementing sufficient restructuring measures, the Enterprise Turnaround Initiative Corp. of Japan apparently determined that it was vital to introduce strict restructuring plans and force creditors to give up collecting loans under a court-appointed administrator based on the Corporate Rehabilitation Law.
Q: Will JAL really be able to rebuild itself?
A: In the United States, Delta Air Lines and other major carries went under due to sluggish business in the airline industry following the 9/11 terrorist attacks and soaring oil prices, but some were able to rebuild themselves by filing for Chapter 11 -- an equivalent of Japan's Civil Rehabilitation Law -- implementing debt reduction and drastic restructuring measures.
Q: Sounds like JAL will be able to survive, doesn't it?
A: Since Chapter 11 is widely deemed a measure to rehabilitate a company through strategic debt reduction, the U.S. airlines that applied for it were able to continue flying without hindrance. However, since Japan's Corporate Rehabilitation Law is very strongly associated with bankruptcy, it is feared that JAL may face a drop in passenger numbers, and a hefty cash settlement to its business partners due to credit uncertainty. In order to keep JAL planes in the air, all possible measures will need to be taken. (Answers by Akihiko Yamamoto, Economic News Department)
Click here for the original Japanese story
(Mainichi Japan) January 9, 2010