Bankruptcy Act

Open accounts terminate when a bankruptcy proceeding is commenced against either party to the account. In this case, each party may close the account and claim payment of the balance.

The claim under the provisions of the preceding paragraph belongs to the bankruptcy estate if it is held by the bankrupt, or is a bankruptcy claim if it is held by the other party.

When bankruptcy proceedings are commenced against the drawer or endorser of a bill of exchange, if the drawee or the backup drawee has accepted or paid the bill without knowing the commencement, the drawee or the backup drawee may exercise their right over a claim arising from the acceptance or payment as a bankruptcy creditor.

The provisions of the preceding paragraph apply mutatis mutandis to checks and money and other items or securities issued for the delivery of payment.

The provisions of Article 51 apply mutatis mutandis to the application of the provisions of the preceding two paragraphs.

The provisions of Article 758, paragraphs (2) and (3), and Article 759 of the Civil Code apply mutatis mutandis when bankruptcy proceedings are commenced against a husband or wife who administers the property of their spouse, and the provisions of Article 835 of that Code apply mutatis mutandis when bankruptcy proceedings are commenced against a person that exercises parental authority.

The commencement of bankruptcy proceedings does not affect the right to segregate, from the bankruptcy estate, property that does not belong to the bankrupt (referred to as a "right of segregation" in Article 64 and Article 78, paragraph (2), item (xiii)).

When the seller has sent the goods that are the subject matter of sale to the buyer, if an order commencing bankruptcy proceedings is made against the buyer while the buyer has not yet paid the price in full and not yet received the goods at the destination, the seller may retrieve the goods; provided, however, that this does not preclude a bankruptcy trustee from requesting the delivery of the goods by paying the price in full.

The provisions of the preceding paragraph do not preclude the application of the provisions of Article 53, paragraphs (1) and (2).

The provisions of paragraph (1) apply mutatis mutandis when the commission merchant that is commissioned to purchase goods has sent the goods to the consigner. In this case, the term "price" in that paragraph is deemed to be replaced with "remuneration and expenses".

If the bankrupt (or a temporary administrator if any temporary administrator is appointed) has transferred property that is the subject matter of a right of segregation prior to the commencement of bankruptcy proceedings to a third party, the person that has a right of segregation over the property may request the transfer of a claim for counter-performance. The same applies when a bankruptcy trustee transfers property that is the subject matter of a right of segregation to a third party.

In the case referred to in the preceding paragraph, if a bankruptcy trustee has received counter-performance, the person that has a right of segregation stated in that paragraph may request the delivery of the property received by the bankruptcy trustee as the counter-performance.

A right of separate satisfaction may be exercised without going through bankruptcy proceedings.

If property that is the subject matter of a security interest (meaning a special statutory lien, pledge, or mortgage; the same applies below in this paragraph) no longer belongs to the bankruptcy estate due to sale by private contract by a bankruptcy trustee or for any other reason, the person that has the security interest may also have a right of separate satisfaction over the property that is the subject matter of the security interest if it still exists.

A right of retention under the provisions of the Commercial Code or the Companies Act that exists at the time of commencement of bankruptcy proceedings over property that belongs to the bankruptcy estate is deemed to be a special statutory lien against the bankruptcy estate.

The special statutory lien stated in the preceding paragraph is subordinate to any other special statutory lien under the provisions of the Civil Code or any other Acts.

Except for the one prescribed in paragraph (1), a right of retention that exists at the time of commencement of bankruptcy proceedings over property that belongs to the bankruptcy estate ceases to be effective against the bankruptcy estate.

If owing a debt to the bankrupt at the time of commencement of bankruptcy proceedings, a bankruptcy creditor may offset the debt without going through bankruptcy proceedings.

Even when a claim held by a bankruptcy creditor is subject to a due date or condition subsequent at the time of the commencement of bankruptcy proceedings or it falls within the category of claims stated in Article 103, paragraph (2), item (i), this does not preclude the bankruptcy creditor from offsetting a debt pursuant to the provisions of the preceding paragraph. The same applies when a debt owed by a bankruptcy creditor is subject to a due date or condition or it relates to a claim which may arise in the future.

The amount of a bankruptcy claim for which a bankruptcy creditor offsets a debt pursuant to the provisions of the preceding Article is the amount specified in each item of Article 103, paragraph (2) for the categories of claims listed in the respective items.

Notwithstanding the provisions of the preceding paragraph, if a claim held by a bankruptcy creditor is a claim without interest or a claim for periodic payments, the bankruptcy creditor may offset a debt only up to the amount of the creditor's claim after deducting the amount of the portion stated in Article 99, paragraph (1), items (ii) through (iv).

When a person that holds a claim subject to a condition subsequent offsets a debt, in the interest of the bankruptcy estate, the person must provide security for or make a contractual deposit of the amount of their debt to be extinguished by the set-off.

If a person that holds a claim subject to a condition precedent or a claim which may arise in the future pays their debt to the bankrupt, in order to offset a debt later, the person may request a bailment of the amount of payment up to the amount of their claim. The same applies when a person that holds a claim to refund the security deposit pays their rent debt.

A bankruptcy creditor may not effect a set-off in the following cases:

if the bankruptcy creditor has incurred a debt to the bankruptcy estate after the commencement of bankruptcy proceedings;

if the bankruptcy creditor has incurred a debt to the bankrupt after the bankrupt became unable to pay debts, under a contract with the bankrupt for disposing of the bankrupt's property with the intent to offset any debt to be incurred by the bankruptcy creditor under the contract exclusively against bankruptcy claims, or under a contract for incurring any debt owed by another person to the bankrupt, and the bankruptcy creditor knew that the bankrupt was unable to pay debts at the time of the conclusion of the contract;

if the bankruptcy creditor has incurred a debt to the bankrupt after the bankrupt suspended payments, and the bankruptcy creditor knew the fact that the bankrupt had suspended payments at the time of incurring of the debt; provided, however, that this does not apply if the bankrupt was not unable to pay debts at the time when the bankrupt suspended payments; and

if the bankruptcy creditor has incurred a debt to the bankrupt after a petition to commence bankruptcy proceedings was filed, and the bankruptcy creditor knew of the fact that a petition to commence bankruptcy proceedings had been filed at the time of incurring that debt.

The provisions of item (ii) through item (iv) of the preceding paragraph do not apply if the incurring of a debt prescribed in these provisions stems from any of the causes listed in the following items:

a statutory cause;

a cause that had occurred before the bankruptcy creditor came to know the fact that the bankrupt had been unable to pay debts, that the bankrupt had suspended payments, or that a petition to commence bankruptcy proceedings had been filed; or

a cause that had occurred not less than one year before a petition to commence bankruptcy proceedings was filed.

A person that owes a debt to the bankrupt may not offset a debt in the following cases:

when the person has acquired another person's bankruptcy claim after the commencement of bankruptcy proceedings;

when the person has acquired a bankruptcy claim after the bankrupt became unable to pay debts, and the person knew the fact that the bankrupt was unable to pay debts at the time of acquisition of the claim;

when the person has acquired a bankruptcy claim after the bankrupt suspended payments, and the person knew the fact that the bankrupt had suspended payments at the time of acquisition of the claim; provided, however, that this does not apply if the bankrupt was not unable to pay debts at the time when the bankrupt suspended payments; or

when the person has acquired a bankruptcy claim after a petition to commence bankruptcy proceedings was filed, and the person knew the fact that a petition to commence bankruptcy proceedings had been filed at the time of acquisition of the claim.

The provisions of items (ii) through (iv) of the preceding paragraph do not apply if the acquisition of a bankruptcy claim prescribed in these provisions stems from any of the causes stated in the following items:

a statutory cause;

a cause that had occurred before the person that owes a debt to the bankrupt came to know the fact that the bankrupt had been unable to pay debts, that the bankrupt had suspended payments, or that a petition to commence bankruptcy proceedings had been filed;

a cause that had occurred more than one year before a petition to commence bankruptcy proceedings was filed; or

a contract concluded between the bankrupt and the person that owes a debt to the bankrupt.

After the period stated in Article 31, paragraph (1), item (iii) expires or the date stated in Article 31, paragraph (1), item (iii) ends, a bankruptcy trustee may set a period of not less than one month and make a demand on a bankruptcy creditor that is able to offset a debt pursuant to the provisions of Article 67, that the bankruptcy creditor should give a definite answer within that period with regard to whether they will effect a set-off, with their bankruptcy claim; provided, however, that this does apply only if the debt owed by the bankruptcy creditor is due.

If a demand under the provisions of the preceding paragraph is made, the bankruptcy creditor may not assert the effect of offsetting debt in their bankruptcy claim in bankruptcy proceedings if the bankruptcy creditor fails to give a definite answer within the period specified under the provisions of that paragraph, .