What Are Provisional Attachment and Provisional Disposition? Civil Provisional Remedies That Secure the Other Party's Assets and Legal Relationships Before Judgment

Hello, I'm Noriaki Asato, Representative Attorney at LegalAgent.

Filing a lawsuit and obtaining a favorable judgment takes time; an ordinary action goes through several hearing dates. There is no guarantee that the other party's assets will remain intact in the meantime. If a business partner that has stopped paying its accounts receivable gives priority to repaying other creditors or sells its assets, the assets that could have been attached may have dispersed by the time the judgment is obtained. Civil provisional remedies (minji hozen) are procedures that bridge the time until judgment and preserve assets and legal relationships until the merits are resolved.

How Civil Provisional Remedies Prevent Assets from Leaking Away Before Judgment

Obtaining a favorable judgment and actually collecting the claim are separate problems. Even if the court upholds the claim, the judgment is only an authoritative decision ordering the other party to pay; it does not automatically attach the other party's bank account. Only by filing a separate petition for compulsory execution after the judgment can the creditor attach deposits, real estate or accounts receivable.

The problem is that, between the filing of the lawsuit and the judgment becoming final, the other party is in principle free to dispose of its assets or use them for other payments. Where there are signs that assets are leaking away, such as continuing payment delays, increasing difficulty in reaching the representative, or moves to sell real estate or transfer the business, the prospects of collection may disappear while the lawsuit is still pending. Civil provisional remedies exist to avoid the risk of non-collection during this gap.

Choosing Between Provisional Attachment and Provisional Disposition

Article 1 of the Civil Provisional Remedies Act provides for provisional attachment and provisional disposition as civil provisional remedies, and provisional disposition is further divided into provisional disposition concerning the subject matter in dispute and provisional disposition to determine a provisional status.

Provisional attachment is a procedure in which a creditor holding a monetary claim provisionally attaches the other party's assets in order to secure future compulsory execution. Article 20, paragraph 1 of the Civil Provisional Remedies Act provides that "an order of provisional attachment may be issued, with regard to a claim for payment of money, when there is a risk that it will become impossible to carry out compulsory execution, or a risk that significant difficulty will arise in carrying out compulsory execution." The assets covered are those that can be converted into money, such as deposit claims, real estate and accounts receivable, and provisional attachment is the procedure mainly considered in cases of unpaid accounts receivable.

Provisional disposition is a procedure for preserving legal relationships other than monetary claims, and it is divided into two types. One is provisional disposition concerning the subject matter in dispute, which a person holding a claim for delivery of a specific thing uses to prevent changes to the current state of that thing. Article 23, paragraph 1 of the Civil Provisional Remedies Act provides that "an order of provisional disposition concerning the subject matter in dispute may be issued when there is a risk that, due to a change in its current state, the creditor will become unable to exercise its right, or a risk that significant difficulty will arise in exercising the right," and typical examples are a prohibition on the disposition of real estate and a prohibition on the transfer of possession.

The other is provisional disposition to determine a provisional status, which is issued when it is necessary to avoid substantial harm or imminent danger with respect to a disputed legal relationship. Article 23, paragraph 2 of the Civil Provisional Remedies Act provides that "an order of provisional disposition to determine a provisional status may be issued when it is necessary in order to avoid substantial harm or imminent danger that would arise to the creditor with regard to the disputed legal relationship," and typical examples include suspension of a director's performance of duties and preservation of a contractual status. The procedure is chosen according to its purpose: provisional attachment for collecting accounts receivable, and provisional disposition for fixing other legal relationships.

Prima Facie Showing Required for the Petition and Preparing the Security

To petition for a provisional remedy order, the petitioner must make two matters clear to the court. Article 13, paragraph 1 of the Civil Provisional Remedies Act provides that "a petition for a provisional remedy order must be filed by clarifying its object, the right or legal relationship to be preserved, and the necessity of preservation," and paragraph 2 of the same Article provides that "a prima facie showing must be made of the right or legal relationship to be preserved and of the necessity of preservation."

The first, the right to be preserved, is, in the case of provisional attachment, the fact that a monetary claim such as an accounts receivable claim exists. Contracts, purchase orders, delivery slips, invoices and records of payment reminders serve as materials supporting the creation of the right. The second, the necessity of preservation, consists of specific circumstances showing that compulsory execution will become impossible or significantly difficult if nothing is done. The petitioner makes a prima facie showing of matters such as the deterioration of the other party's financial condition, preferential repayment to other creditors, or moves to sell assets or transfer the business. A "prima facie showing" (somei) is said to require a lower degree of conviction than "proof" in an ordinary lawsuit, but it is not accepted without supporting materials, so it is important to organize the evidence on hand in advance.

In addition, provisional remedy orders are normally issued on the condition that security is provided. Article 14, paragraph 1 of the Civil Provisional Remedies Act provides that "a provisional remedy order may be issued by having security provided, by making the provision of security within a certain period found reasonable a condition for carrying out the execution of the provisional remedy, or without having security provided." Under Article 4, paragraph 1 of the Civil Provisional Remedies Act, security is provided by depositing money or the like with a deposit office within the district of the district court having jurisdiction over the location of the court that ordered the security or of the court of execution of the provisional remedy, or by other means such as concluding a payment guarantee entrustment contract as provided by the Rules of the Supreme Court.

This security is intended to cover the damage the other party would suffer if the provisional remedy order proved to be unjustified, and the court sets the amount according to the case. When considering a petition, it is also a prerequisite to check cash flow to see whether a certain amount of cash can be prepared as a deposit.

Confidentiality: Proceeding Without Notifying the Other Party

One of the main features of civil provisional remedies is confidentiality, meaning that the procedure proceeds without the other party's knowledge. In an ordinary lawsuit, the complaint is served on the other party and both sides present their arguments at oral hearings, but Article 3 of the Civil Provisional Remedies Act provides that "a judicial decision on civil provisional remedy proceedings may be made without holding oral argument." In practice, provisional attachment and provisional disposition concerning the subject matter in dispute, such as a prohibition on disposition or on transfer of possession, are generally issued without hearing the other party.

The exception is provisional disposition to determine a provisional status. Article 23, paragraph 4 of the Civil Provisional Remedies Act provides that "an order of provisional disposition under paragraph 2 may not be issued unless a date for oral argument or a hearing that the obligor can attend has been held," and for this type the other party is, in principle, guaranteed an opportunity to respond. However, under the proviso to the same paragraph, if there are circumstances in which holding that date would defeat the purpose of the petition, the order can be issued without holding it.

Confidentiality is maintained because, if the petition became known in advance, the other party could withdraw its deposits or transfer its assets and undermine the effectiveness of the procedure. The process from the petition to the issuance of the order and to execution of the provisional remedy, such as executing a provisional attachment of deposits, must proceed quickly, and when the company considers the matter internally it should also prepare while limiting the circle of people who share information so that the other party and business partners do not learn of it.

Effect on Negotiations and the Risk of Unjustified Provisional Remedies

Once a provisional attachment is issued and the other party's bank account or its accounts receivable from its customers are frozen, the other party faces pressure on its day-to-day cash flow. Because the provisional attachment becomes known to its bank and customers, it can also lead to concerns about its creditworthiness, and there are situations in which a party that had been putting off payment uses this as an occasion to agree to voluntary negotiations.

However, if the claim is not upheld in the action on the merits, the petitioner may, as a result, have forced an unjustified freeze of assets on the other party. In that case, the petitioner may be held liable for damage the other party suffered because of the petition for the provisional remedy order. Article 709 of the Civil Code provides that a person who has intentionally or negligently infringed the rights or legally protected interests of another is liable to compensate for the damage resulting from that infringement. If the right to be preserved did not exist and the petitioner was at fault, intentionally or negligently, in obtaining the provisional remedy order, this tort liability may be pursued. This is not a procedure to be used lightly without sufficient grounds and a good prospect of success.

When to Consider Provisional Remedies and Materials to Prepare

A guideline for considering provisional attachment is the point at which signs of deterioration in the other party's financial condition appear. Once the company becomes aware of matters such as delayed payments to other business partners, loss of contact with the representative or the person in charge, or moves to sell assets, it is time to begin considering provisional remedies in parallel with ordinary payment reminders.

When consulting an attorney, bringing materials on the right to be preserved, such as contracts, invoices and the history of payment reminders, together with records showing the other party's asset situation and its payment status with other companies, makes the assessment smoother. It is also reassuring to control the circle of people within the company who share the information so that the other party does not detect the procedure.

At a stage where ordinary payment reminders have stalled and there is concern that assets will leak away, I think it is realistic to consider options that include provisional remedies as well as a lawsuit. For the flow from payment reminders to a demand for payment procedure and a lawsuit, see Steps for Collecting Accounts Receivable; for the initial response immediately after a breach of contract, see the initial response to breach of contract; and for court jurisdiction where the other party is a foreign company and there is an agreed jurisdiction clause, see Governing Law, Agreed Jurisdiction and Arbitration Clauses.