Japan, far from becoming antagonistic to the occidental nations, as it
was prognosticated by some of the Continental journalists, has given
another proof of her readiness for the identification of her economic
interests with those of the occidental people.
Hitherto in Japan there has been no law which regulated the mortgaging
of a railway, or a mining enterprise, or a factory, together with its
working system, as a corporation, that is to say, mortgaging the whole
system of a railway, a mining enterprise, or a factory as an economic
whole, comprising not only each particular material object but also all
the organic components of its working system as the subject matter of
mortgage. A radical change has now been effected in the matter.
According to the Japanese laws there are two methods for a commercial
company in contracting a debt. One is the ordinary borrowing of money
from a creditor, and the other is borrowing in the shape of debentures
by public subscription. Now in ordinary borrowing of money the liability
may be secured by mortgage, but the debentures could not be secured by
mortgage, although of course the liability extends to the whole property
of the company.
The first effect of the new change is the provision which enables
companies to guarantee debentures by mortgage, and the second effect is
the provisions which relate to the creations of economic corporations of
railways, mining works, or factories for the special purpose of
instituting mortgages of their economic entity.
To make the matter easier to comprehend, I will first explain it with
regard to railways.
The permission of the Government originally given to the company is in
the nature of a licence or concession which is to be viewed more in the
light of a personal matter of the original company, and therefore it
could not be a subject matter of a public auction, and therefore
according to the old law, if a railway company becomes bankrupt, all the
material property, either movable or immovable, would go to new hands,
but the licence itself cannot but become extinct with the dissolution of
the original company, viz. the original grantee.
This being so, if a railway company fails to fulfil its liability for
debenture and goes into bankruptcy, the ultimate result would be that
the railway system would be broken up, and the creditors would get their
satisfaction only from the sale of each piece of the material property
sold by public auction. Even in the case of ordinary debt, whereby all
the material property can be mortgaged, the result would be practically
the same.
All these inconveniences have now been removed by a series of new laws
passed by the last session of the Imperial diet and promulgated on March
13, 1905, by the Imperial Government. The articles of the laws are very
numerous and minute, so that it would be unnecessary to dwell upon them
here in detail, but the more important parts may be summarised as
follows:
_(a)_ The economic entity of a railway company may be constituted a
special economic corporation for the purpose of mortgage.[2]
_(b)_ In default of payment of the mortgage liability, the whole, _i.e._
the corporation, may be subjected to auction. This provides the means
for transferring, together with the material properties, the original
permission of the Government, namely, the licence, to the purchaser,
viz. a new company.
_(c)_ A company, which in reality may be taken as a syndicate, may be
formed for advancing money by means of debentures. Such company may
acquire legal recognition and may represent the creditors of debentures.
It forms a particular kind of commercial company, and is called 'trust
company.'
_(d)_ At the option of the creditors, means of compulsory control of the
railway in the interest of creditors are also provided for in the laws.
_(e)_ Special provisions are made to meet the cases where the syndicate
and investors are of foreign nationality: namely, the means of
recognising foreign syndicates by the Japanese Government, and also the
means of affording convenience for foreign investors.
_(f)_ Further provisions are made for facilitating the registration of
constituting the said corporation, and the registration of the mortgage
thereof, for these affairs, as far as railways are concerned, are now
entrusted, by the new laws, to the Minister of Communications, to whose
control the railways belong, and not to the local courts of law, as is
the case with all other kinds of mortgages.
This change of our laws gives very great facility to foreign investors
who may be willing to lend money on railway securities.
The case of mining enterprises were similar because they are also based
on licences. For them also much the same changes have been effected by
the new laws, so that their economic entity may now be mortgaged in the
interests of either an ordinary creditor or investors in debentures.
The cases of ordinary factories differ in origin from those of the
railways or mines, they not being based on a concession or licence like
railway or mining enterprises. But for them also the new laws have made
provisions for the means of constituting corporations for the purpose of
guaranteeing debenture by mortgage. Provisions have also been made for
guaranteeing debenture by mortgaging ships, any definite property either
immovable or movable, or any legal claims which are secured by written
instruments.
[1] The _Outlook_.
[2] The law also permits the companies constituting such a corporation
of a part of the whole for a similar object. But as its general purport
does not materially differ, I omit its account in order to avoid
confusion.--_The Author_.