We support asset finance schemes for international ship and aircraft transactions.
Ship and aircraft finance, collectively referred to as asset finance, is not necessarily a scheme that widely marketed to the general investors, but it falls under the domain of a typical Type II financial instruments business.
We utilize our expertise in registering and administrative procedures for the Type II Financial Instruments Business, to primarily structure silent partnerships that invest in leveraged leases as their investment target.
Finance leases/Japanese Operating Leases (JOLCO)
With regard to ship leasing, we have a track record of involvement in the securitization of not only in cargo ships and containers, but also cruise ships.
In Ship Finance, the tax merits of depreciation are focused, so the main scheme is to acquire used ships and lease them to charterers.
However, in past, there have been special cases in which securitize the ship from the shipbuilding stage at shipyards.
In addition to ships and aircraft, there have also been an increasing number of cases of securitizing trucks and other transportation equipment for depreciation purposes.
In the past, solar power funds were also sold as tax-saving products with the aim of lump-sum depreciation benefits provided by green investment tax cuts. However, with the abolition of green investment tax cuts, the popularity of such funds has waned.
In Ship and Aircraft Finance, when offering silent partnership interests to originators, it is necessary for Type II Financial Instruments Business Operators to conduct sales.
Type II Financial Instruments Business Operators handle silent partnership interests issued by SPCs, which will become asset holders. Or they may either directly handle the interests or temporarily acquire them through specific underwriting before selling them to investors.
We are able to handle a wide range of operations, from registration of Type II Financial Instruments Business to the documentation involved in actual fund formation, such as silent partnership contract and pre-contract disclosure materials, , as well as providing advisory services on the overall scheme, including revenue projections and other aspects.
Utilize of Offshore Corporations
Many shipowners choose to use Panamanian corporations for ship ownership, which uses in the form of so-called FOC (Flag-of-Convenience) ship.
Due to the specialized nature of marine-related documentation such as charter contracts with charterers, we cooperate with other specialists like the expertise of maritime specialist offices in conducting actual business projects.
In the issuance of a fund, a scheme that involves initially purchasing all the fund interests by related parties and subsequently reselling them to investors fall under the category of the underwriting business, which is a Type I Financial Instruments Business. Generally, conducting such activities requires registration as a Type I Financial Instruments Business Operator.
However, there is an exceptional case that a Type II Financial Instruments Business Operator with a capital of JPY 50 million or more, engages in the private placement of a silent partnership contract issued by a stock company that is a 100% subsidiary of the Type II Financial Instruments Business Operator, the underwriting is permitted. This exception applies only if the investment target business of the silent partnership is limited to businesses that involve the use of machinery, equipment, or other goods or properties.
This is referred to as the Specified Underwriting (as defined in Article 16, paragraph (1), item (v) of the Cabinet Office Ordinance on Definitions prescribed in Article 2 of the Financial Instruments and Exchange Act).
Specific underwriting is commonly used when ship and aircraft funds are issued.
Our office has a wealth of experience in supporting schemes that utilize offshore corporations for ship ownership SPCs.
In addition, we also handle the establishment of related matters for bankruptcy isolation schemes using general incorporated associations when conducting silent partnership formation in the form of a “GKTK” domestically.
If you are a related business entity considering the establishment of Ship and Aircraft Finance schemes, please feel free to contact us.
F A Q about Ship and Aircraft Finance
Q) Is it possible to adopt a “loan-type” scheme where lending to SPCs that own assets are the investment target business?
It is legally possible, but depending on the type of loan, it may need to be conducted in the form of group lending as defined by the Money Lending Business Registration or the Order for Enforcement of the Money Lending Act.
In addition, because the “Rules on the Handling of Private Placement of Business-type Funds, etc.” and the “Q&A on Loan-type Funds” are applied, obligations such as fund screening, loan screening, and various disclosures including conflicts of interest, monitoring etc., are imposed.
Practically, the use of a Double SPC scheme involving related companies requires meticulous management conflict of interest and disclosure. Therefore, the documentation involved in the formation of such a scheme will be substantial, and careful preparation is necessary.
Q) Is it necessary to conduct bankruptcy remoteness of asset-owning companies?
Legally, bankruptcy insulation, also known as bankruptcy remoteness, is not required. However, in domestic schemes, it is common practice to set up a so-called GKTK scheme in which the originator establishes general incorporated association and a limited liability company that becomes the issuer of the silent partnership as a subsidiary of such general incorporated association.
Q) Are there any matters to be noted when registering Type II Financial Instruments Business in Ship and Aircraft Finance?
In the registration examination of Ship and Aircraft Finance, the treatment of silent partnership assets at the end of the contract period (disposal and conversion method) becomes an important point to consider.
It is necessary to provide objective explanatory materials that demonstrate the validity of the estimated asset disposal price and the certainty of revaluation from a liquidity perspective, at the end of the contract period.
Additionally, it is important to establish measures to manage conflicts of interest and to ensure a transparent decision-making process during asset disposal.