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At CE Interim, we help companies navigate the most complex restructuring challenges—across borders, cultures, and legal frameworks. Through our global alliance, we regularly work with local experts who understand not just the formal rules, but also the informal dynamics that shape successful turnarounds.

In this interview, Steve Rutherford, Partner at Valtus UK, speaks with Hajime Baba, founder of Clareza Partners in Tokyo, about what makes restructuring & turnaround in Japan so unique.

From legal norms and employee protection to social expectations and the hidden role of interim managers, Hajime explains why global strategies don’t always work in Japan—and what must be done instead.

What makes Japan’s legal framework for restructuring unique?

Japan blends formal legal processes with deeply ingrained informal practices. On paper, there are clear court-based options:

• Civil Rehabilitation (Minji Saisei)
• Corporate Reorganization (Kaisha Kosei)

But in practice, out-of-court workouts like the Business Turnaround ADR (Jigyo Saisei ADR) are more common. These involve negotiations between creditors and main banks without court intervention.

Why avoid court? Because in Japan, bankruptcy carries a heavy social stigma. Most companies would rather resolve issues quietly than risk reputational damage. Add to this the strong employee protection laws, and you get a system that naturally favors cooperation, consensus, and continuity over aggressive cuts or abrupt exits.

What mistake do companies make early in a liquidity crisis?

Denial is the most common trap. Out of fear or pride, companies downplay the severity of their situation. They assume their main bank will step in, as it has before, and avoid restructuring conversations.

This delay reduces their options. By the time help is sought, creditors are less patient and recovery plans are harder to implement. Over-reliance on relationships, and underestimating operational problems, makes the fall steeper.

When should an external restructuring expert be brought in?

Early. Very early. Ideally, as soon as cash flow tightens or bank terms worsen.

However, there’s cultural resistance to external control. Japanese boards prefer internal decision-making. That’s why external experts are often introduced as neutral advisors, especially if suggested by a trusted bank. Interim roles like CRO or COO are possible, but positioning and trust-building are crucial.

What happens to employees if a company becomes insolvent?

Japan’s system tries to protect employees. The government wage protection scheme covers up to 80% of unpaid wages, within capped limits. But bonuses are usually lost, and any salary above the cap is treated as unsecured debt.

Still, the cultural weight of job loss remains high. Many workers view layoffs as personal failure. That emotional factor shapes how restructuring is handled on the ground

Which case shaped your restructuring view the most?

I supported a global private equity firm that had acquired a traditional Japanese company. Post-acquisition, the clash between global strategy and local culture became clear. Employees resisted change, unions pushed back, and morale dropped.

The solution wasn’t just operational—it was cultural. We worked to bridge the psychological gap, building trust while still implementing needed reforms.

This case, and others like it, taught me that doing things the “global way” rarely works in Japan. You need local knowledge, patience, and cultural fluency to make real progress.

What should foreign companies with a Japanese subsidiary do during a crisis?

First, act early. Japan’s legal system has pathways like Minji Saisei or ADR workouts, but you must move before bankruptcy becomes unavoidable.

Second, get local expertise on board immediately. Mishandling employment issues or violating cultural expectations can lead to long-term reputational damage. If your goal is to stay in Japan, you must restructure carefully, not quickly.

Is private equity active in Japanese restructuring?

It’s growing, but not dominant. While PE firms now play a visible role, especially foreign funds, main banks and traditional shareholders still shape outcomes.

These stakeholders value gradual transitions and employment protection over fast exits or aggressive takeovers.

Many PE firms adapt by taking minority positions, joining boards, and working collaboratively. Interim managers become essential in these setups, especially when cultural gaps slow execution. They can implement strategy, align teams, and drive performance—without breaking trust.

So what makes Japan different in restructuring?

You can’t bulldoze your way through. Japan’s system demands respect, nuance, and deep understanding. Formal legal tools exist, but informal influence, reputation, and employee trust often matter more.

In Japan, the quiet solutions often succeed where loud ones fail. And that’s exactly why interim managers, with their neutrality and cross-cultural awareness, are proving so valuable.

Ready to restructure in Japan the right way?

CE Interim works with local experts like Hajime Baba to support foreign companies in Japan through sensitive, well-planned restructurings. Whether you need an interim CRO, local diagnostic, or support with employment strategy, we’re here to help.

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