Recovering Loans and Investment Money in Japan
You transferred money to a Japanese company or business partner.
The business failed to develop as expected.
You now want the money back.
Before sending a demand, one question is essential: was the money legally a loan or an investment?
The answer can determine the entire case.
A failed investment is not automatically a debt
If you loaned JPY 5 million under an agreement requiring repayment by a particular date, the legal analysis may be relatively straightforward.
If you invested JPY 5 million in return for shares, however, the company does not ordinarily owe you JPY 5 million simply because the shares lost value.
Investment involves risk.
"The business failed, so please return my investment" is not by itself a legal basis for repayment.
A separate contractual or legal basis must normally be identified.
What was the money for?
The same bank transfer can have very different legal meanings.
It may have been:
- a loan
- subscription money for shares
- an advance
- a refundable deposit
- funding for a joint project
- payment under a partnership arrangement
- money transferred because of alleged misrepresentations
The contemporaneous documents matter more than the label later chosen by either party.
Evidence to collect
Preserve:
- loan or investment agreements
- bank transfer records
- emails and messages before payment
- pitch materials
- financial projections
- shareholder documents
- cap tables
- repayment schedules
- acknowledgments of debt
- messages promising repayment
- later explanations concerning the use of funds
What if there was no written loan agreement?
The absence of a signed agreement does not necessarily make recovery impossible.
Emails, bank records and subsequent admissions may show that both parties understood the transfer to be repayable.
For example, messages such as:
"I will repay the JPY 3 million by December"
can be significant evidence when considered together with the surrounding circumstances.
Investment fraud and ordinary investment loss are different
A disappointing investment is not necessarily fraud.
To evaluate a potential misrepresentation claim, it may be necessary to identify:
- what statement was made
- who made it
- whether it concerned an existing fact or a future prediction
- whether it was false
- what the speaker knew
- whether the investor relied on it
- whether the statement caused the loss
Statements such as "this startup will probably become worth JPY 10 billion" are legally different from a false statement such as "the company already has JPY 100 million in annual revenue."
Check the recipient and movement of the funds
Another recurring issue is that the person who negotiated the transaction is not the same legal person that received the money.
For example:
- negotiations were with the founder
- the agreement names Company A
- the payment went to Company B
- the shares were supposed to be issued by Company C
Identifying the correct defendant is therefore essential. Where the money was put in by one of the people running the business, the surrounding relationships usually have to be untangled at the same time: see founder and business partner disputes in Japan.
Act early if the company is in financial difficulty
Winning a claim and recovering money are not the same thing.
If a company has no assets by the time judgment is obtained, practical recovery may be difficult.
Warning signs include:
- repeated requests for extensions
- sudden silence
- closure of an office
- unpaid employees or contractors
- resignation of management
- disposal of significant assets
- indications of insolvency
Where the financial condition is deteriorating, delay can materially affect the practical value of a claim.