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Bankruptcy, Civil Rehabilitation, Corporate Reorganization, Composition, Japan
In April of 2000, the Japanese Diet instituted two changes to their bankruptcy code in an attempt to address perceived weaknesses. The first change was the elimination of Composition, the most popular form of bankruptcy reorganization at that time. The second was the introduction of the Civil Rehabilitation Act. One of the primary goals of the introduction of Rehabilitation was to induce managers of distressed firms to file sooner when the firm’s financial problems were less difficult to address. This paper examines the impact of the Civil Rehabilitation Act and finds that after the Act was implemented larger firms make better candidates for reorganization but smaller firms are in poorer financial condition and are hence, poorer candidates for reorganization.