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COVID-19: Japan, FSA Issue Announcements After Declaring State of Emergency

April 21, 2020

Following the declaration of a state of emergency due to COVID-19, Japan’s Financial Services Agency (FSA) made recent announcements extending the filing deadline for annual securities reports and other disclosure reports, and providing guidance on annual shareholder meetings. In addition, the government announced additional areas subject to the declaration and an amended assistance plan.

Filing Deadline Extended for Annual Securities Reports and Other Disclosure Reports

Under the Financial Instruments and Exchange Act of Japan (FIEA, Act No. 25 of 1948, as amended), corporations issuing certain securities (e.g., securities listed on a Japanese stock exchange) are required to file annual securities reports for each fiscal year. The deadline for filing these reports is within three months after the end of each fiscal year for Japanese corporations and within six months for foreign corporations. Japanese corporations generally set forth in their articles of incorporation that the fiscal year ends on March 31, and it is common for foreign corporations that the fiscal year ends on December 31. Accordingly, most Japanese and foreign corporations will need to file annual securities reports for the fiscal year 2019 by June 30, 2020.

While the FSA has been responding separately to each individual request for delayed reports, due to the declaration and COVID-19 pandemic, it would be difficult for many corporations to proceed to close their books and to conduct an audit as usual. In order to secure sufficient time for these activities, the FSA’s announcement on April 14 officially extended the deadline for the filing of annual securities reports for fiscal year 2019 to September 30. Following this announcement, subordinate regulations under the FIEA were amended, promulgated, and implemented on April 17. According to this amendment, the filing deadline for annual securities reports and other disclosure reports (e.g., quarterly securities reports, semi-annual securities reports, parent company status reports, and foreign company reports) that originally were needed to be filed during the period from April 20, 2020, to September 29, 2020, will be automatically extended to September 30, 2020, without separate applications for the extension needed.

FSA Provides Measures for Annual Shareholder Meetings

Most Japanese corporations set forth in their articles of association that annual shareholder meetings must be held within three months after the end of each fiscal year. As previously noted, most Japanese corporations end their fiscal year on March 31. Accordingly, most Japanese corporations will need to hold annual shareholder meetings by the end of June each year.

In response to the COVID-19 pandemic, on April 15, the FSA announced that corporations with their fiscal year ending in March will be required to take the following into consideration for the annual shareholder meetings scheduled in June. These considerations balance the necessity of preparing financial statements and conducting related audits with the safety of employees and those who engage in audit activities:

  • That referring to the Q&As concerning shareholder meetings issued by the Ministry of Economy, Trade and Industry, corporations are expected to consider appropriate measures to prevent the spread of COVID-19 in advance of the annual shareholder meetings.
  • That the Companies Act of Japan (Act No. 86 of 2005, as amended) does not require corporations to hold annual shareholder meetings by the end of June, and it is possible to defer this schedule.
  • That where corporations hold annual shareholders meetings in June as scheduled for the purpose of timely financing or business decisions, such corporations may consider the following:
  • The corporation may hold its annual shareholder meeting as scheduled and request a resolution for suspension. At the originally scheduled meeting, the corporation will resolve matters (e.g., election of directors) other than confirming financial statements and the audit report and explain that these will be submitted at the subsequent prorogued meeting.
  • The corporation and the auditor will continue to prepare financial statements and conduct auditing activities in consideration of the safety of employees and those who engage in auditing activities. The corporation will be required to provide shareholders with financial statements and the audit report as soon as they are available so that shareholders will have sufficient time to review them. The corporation will also be required to hold the subsequent prorogued meeting within a reasonable period after the originally scheduled meeting.
  • The corporation will be required to provide a sufficient explanation of financial statements and the audit report in the subsequent meeting. When holding the subsequent meeting, the corporation should fully inform shareholders of these procedures by sending the notice as necessary.

The FSA also stated that investors will be expected to pay more attention to the necessity of ensuring financial stability from a long-term perspective in order to achieve sustainable growth of the corporations in which they invest. According to the FSA, investors will also be expected to understand the above measures, given the difficulty in preparing financial statements and performing audits due to the COVID-19 pandemic.

Government Expands Scope of Declaration, Amends Payment Assistance

The Japanese government on April 16 announced that the scope of the declaration will be expanded to all prefectures and will be continued to all prefectures until May 6, the end of a week of holidays (“Golden Week”) in the country. Thirteen prefectures—the seven prefectures originally subject to the declaration (Tokyo, Kanagawa, Saitama, Chiba, Osaka, Hyogo, and Fukuoka), plus Hokkaido, Ibaraki, Ishikawa, Gifu, Aichi, and Kyoto—were designated as “Prefectures with Special Caution” due to the excessive prevalence of COVID-19 in those areas. The government is trying to reduce physical personal contact by at least 70%, and to the extent possible by 80%, and cautioned “Prefectures with Special Caution” that stronger measures (such as request, instruction, or publication to suspend usage of specific facilities) could be considered as necessary.

In addition, the government originally planned to pay assistance aid of JPY 300,000 for each household whose monthly income was JPY 100,000 or less. However, on April 17, the government announced the amendment of this plan and instead plans to pay JPY 100,000 for each citizen in order to provide generous assistance throughout the nation. The government is now preparing the amended supplemental budget accordingly.

Additional Resources

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.

This is the fifth alert in a series from Morgan Lewis’s investment management team in Tokyo that summarizes how the COVID-19 pandemic has impacted investment fund-related businesses in Japan. For more, read our earlier alerts: COVID-19’s Impact on Notification Filings in Japan, COVID-19’s Impact on Annual Report Filing Requirements in Japan, Update: COVID-19’s Impact on Filings to Japan’s Kanto Local Finance Bureau, and COVID-19 in Japan: State of Emergency Declared, Emergency Economic Measures Issued.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Tokyo
Tomoko Fuminaga
Christopher Wells
Narumi Ito
Ryota Kikuchi