Akasaka International Law, Patent & Accounting Office.

Withdrawal from Japan or Downsizing: Liquidation procedure and Dismissal

Oct 25, 2020

Many Japanese people including Japanese country managers, CPAs, and attorneys, solicit foreign investments into Japan. But not so many suggest the withdrawal from Japan or downsizing due to COVID-19.  Event companies and retail business companies need to retain many people and venues which burden the Japanese subsidiaries. Of course, you could take special loans and subsidies from the government. But we cannot foresee the profit of the near future which allows us to decide the withdrawal.

We noted that due to COVID-19 you usually work via the internet rather than at the workplace. Even the delivery service can be done by the warehouse service, so you could reach the conclusion that the management issue shall be which subsidiary activities need to be ceased, Japan, China, Korea, or Singapore, etc..

The main expenditures are salary and rent while the consumers are an important factor to decide from which countries your company shall withdraw.  You need to establish the plan to downsize the activities or withdraw from the market, such as the timing of dismissal, the termination of the lease agreement, and the liquidation of the company if necessary. Sometimes, people adopt the dormant company to hope that this company can be used for an alternative way. 

If we choose the liquidation plan before deciding the winding-up you need to decide which employees shall be kept as the main staff of the liquidation procedure. 

1)Termination of the employment

Once you decide on the main members, you need to notify other members of the liquidation procedure plan. It is advisable for you to have a one-to-one meeting with the main staff before the said notification so that you could work closely with the main staff to complete the plan. Create the draft with a termination agreement to provide to employees. Please kindly note that if you use the dismissal letter, you need to provide at least 30 days’ wage to employees to be notified. Because a soft solution might be beneficial to all of the members, it is better to use the termination agreement rather than dismissal.

2)Termination of the Lease Agreement

You also need to check the lease agreement and know how to terminate the lease agreement. Normally more than 3 months advance notice is required. You also need to consider the deposit and restoration of the room conditions. Many lease agreements say that landlords decide which agents to restore the room conditions, which enable landlords to decide the scope of the restoration. If your companies lease a large place, I recommend you to find the agents to evaluate the restoration of the leased place to reduce the fee.

3) Termination or change of the long term relationship

Your companies may use the distributorship agreement with third parties. You might need to negotiate with them.

4) Procedure of the liquidation procedure

Once you complete the above procedure, which can be expensive, you can choose the timing to complete the liquidation procedure. After winding up, you need to choose the liquidator and file the said changes for the registration. You also need to publish the notice via official gazette, which period shall be more than 2 months to notify creditors to wait for their claims. If you have products, you might well notify consumers of the contacts of the substitute agents to fix the products if there are defects. You need to hold the general shareholder meeting to finalize the accounting documents and to pay the debt to creditors. After the completion of the liquidator’s duty, the liquidator shall file the liquidation completion for the registration. The liquidator shall keep the accounting book for 10 years.  

5)What the parent company needs to do

Find another way to stay in the market. For example, it can find the distributors or use a client list to inform them of the subsidiary.

For further information, please contact us.

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