COVID-19

COVID-19: Japanese supports for shrinking business activities and employment

Covid-19:  Japanese supports for shrinking business activities and employment

Cet article est fourni gracieusement par Lionel Vincent, Managing Partner de LPA Tokyo, membre bienfaiteur de la CCI France Japon

As the new coronavirus infection (known as “Covid-19”) is spreading around the world, it is more and more affecting people as well as the business of companies. Japanese government and several prefectures in Japan have implemented special measures to help the companies against the decline in their activities due to the Covid-19.  

The Japanese government supports business activities through (1) special measures for the employment and (2) financial support for small and medium enterprises. 

Specific measures have also been installed in several prefectures. Please refers to the link here (in Japanese only) for these local measures. 

1. EMPLOYMENT RELATED SPECIAL MEASURES

Due to economic difficulties caused by the Covid-19, many companies in Japan are forced to consider reducing their workforce or suspending temporarily employment agreements in order to limit their costs. What are the options available?

  • Temporary suspension of the employment agreements: partial activity plan

It is possible for the employer to suspend all or part of the employment agreements in order to cope with a business downturn under Article 26 of the Labor Standards Act

The employer has the obligation to pay a leave of absence allowance to all employees whose employment agreements are suspended. Such allowance shall be at least equal to 60% of the average wage for the past 3 months.

In case of a suspension of employment agreements, it is advisable that the employer enters into a labour management agreement with the representative of the employees. The purpose of the labour management agreement is to agree with the employees on the partial activity plan which shall provide the cause for such suspension of employment agreements, the duration of the plan, the envisaged reduction of the working time, the number of employees concerned by the plan per category and the detail of the calculation of the absence allowance to be paid by the employer to the employees. This would clarify the terms applicable to such suspension and avoid potential disputes. On the other hand, the employers who enters into the labour management agreement is eligible for the subsidies described hereafter.

  • Subsidies from the unemployment insurance

An employer who is facing economic difficulties and who has to implement a partial activity plan may submit an application to the unemployment insurance scheme through Hello Work in order to get the leave of absence allowance under the plan covered by the unemployment insurance.

As rule, the conditions to be eligible to such subsidy are quite strict. However, under the current situation, the Japanese government has eased the possibility for companies to claim the benefit of such coverage.

The main conditions are the following: i) the implementation date of the partial activity plan shall take place between 24 January and 23 July 2020 and shall last more than 1/20 (1/15 for big companies) of the annual prescribed working days; ii) applicable to all employees (including employees with less than 6 months seniority); iii) the turnover or the volume of production has decreased by more than 10% compared to the previous year (or such other economic difficulties leading to the closure of an office or plant); iv) conclusion of a labour management with the employees and v) submission of the form to Hello Work with all supporting evidence.

If the application is validated and accepted by the unemployment insurance, the employer will get the leave of absence allowance to be paid to employees covered up to 2/3 of the amount per employee for an SME and up to 1/2 for a big company up to a maximum amount of JPY 8,330 per day per employee.

The subsidy can be granted for a maximum period of 100 days.

  • Are termination/ dismissal due to business reason an option?

Regarding termination/dismissal, the current exceptional circumstances of the epidemic do not give rise to any easement of the conditions to be fulfilled to justify the termination of an employment agreement. The Ministry of Health, Labor and Welfare (MHLW) set out few criteria in order to identify a significant downturn resulting from Covid-19. The main assessments are related to overseas supplier dependency and the circumstances around the business interruption. Therefore, unless the situation of the company is at jeopardy due to the current situation, termination and dismissal would remain difficult.

  • Financial support for parents forced to take leave due to temporary closure of elementary schools of their children

This financial support program is granted to the parents who have been forced to take annual paid due to the closure of their children schools (the recipient of such financial support is actually the company). This program will avoid the employer to pay absence allowance due to the annual paid leave taken by the employees.

This program is limited for the annual paid leave taken between 27 February and 31 March 2020 and the financial support shall be limited to 8330 JPY per day and per employee.

2. FINANCIAL SUPPORT FOR SMALL AND MEDIUM ENTERPRISES

The Japanese government grants financial support to the Small and Medium Enterprise (SME) representing a total amount of 1.6 trillion JPY by extending the eligibility to specific credit guarantees provided to support the decrease of business activities due to Covid-19, providing new type of loans and adopting new guidelines for financial institutions regarding business loans.

  • Guarantees: Specific Credit Guarantees for Business Difficulties Due to Covid-19

Small and Medium-sized Enterprise Credit Insurance Act (SME Credit Insurance Act) provides multiple credit guarantees to guarantee SMEs’ debt up to JPY 280 million coverage per SME (“Safety Net Credit Guarantees”). Such Safety Net Credit Guarantees cover 8 different situations[1]. Concerning Safety Net Guarantee n°4 and n°5, these guarantees are open for application only when there is a special reason admitted by the Minister of Economy, Trade and Industry. The Minister have admitted Covid-19 as a special reason to grant the guarantees above to SMEs facing business difficulties due to Covid-19 with an additional amount of debt coverage of 280 million JPY (total accumulated amount of JPY 560 million) for categories n°4 (Natural disaster guarantee) and n°5 (Sectors in business difficulties).

SME Credit Insurance Act provides an additional guarantee called “Crisis-related Guarantee” (Kikikanren Hosho). The Minister has also decided to grant this guarantee to SMEs facing business difficulties due to Covid-19. This guarantee coverage cumulated with the Safety Net Guarantee n°4 or n°5 represent a total potential coverage amount of JPY 840 million JPY.

 

Criteria of eligibility

Credit guarantee coverage

Safety Net Guarantee n°4

(Natural disaster guarantee)

1) SME with 1 year of business activity in Japan

2) Due to the impact of Covid-19, decrease of the last monthly net sale by more than 20% compared to the same month for the previous year

3) Expectation of decrease of net sale by more than 20% for the next 2 months (certification of the decrease of net sale by the mayor of the place of business required)

1) Objective of the fund: stabilize the management fund

2) Guarantee: 100% of the debt

3) Maximum amount: JPY 280 Million

Safety Net Guarantee n°5

(Sectors in business difficulties)

1) SME in 508 designated industry

2) Due to the impact of Covid-19, decrease of the last monthly net sale by more than 5% compared to the same month for the previous year.

1) Objective of the fund: stabilize the management fund

2) Guarantee: 80% of the debt

3) Maximum amount: JPY 280 Million

Crisis-related Guarantee

1) All SMEs in financial difficulties

2) Due to the impact of Covid-19, decrease of the last monthly net sale by more than 15% compared to the same month for the previous year

3) Expectation of decrease of net sale by more than 15% for the next 2 months (certification of the decrease of net sale by the mayor of the place of business required)

1) Objective of the fund: stabilize the management fund

2) Guarantee: 100% of the debt

3) Maximum amount: JPY 280 Million

  • Loans: Types of Loans

On 10 March 2020, the Japanese government announced the creation of new “low interest and no-pledge” loan system for SMEs to mitigate the economic impact of the Covid-19 (the “Special Covid-19 Loan”) financed by the Japan Finance Corporation[2] (the “JFC”). The Japanese government has also decided to implement an additional loan with a special interest for the loans already provided by JFC to SMEs which are under special business program of local or regional Chamber of Commerce (Maru-kei Yushi) and extended the “Safety Net Loan” to SMEs in business difficulties due to the Covid-19.

 

Criteria of eligibility

Loan conditions

Special Covid-19 Loan

Decrease of the last monthly net sale by more than 5% compared to the same month for the previous year

or

Decrease of the last monthly net sale more than 5% compared to a) the last 3-month average net sale or b) the net sale of December 2019 or c) the average net sale from October to December 2019

1) Maximum loan amount: 300 Million JPY

2) Objectives: working capital, equipment investment

3) Pledge/guarantor: N/A

4) Interest: standard interest – 0,9% for the first 3 years for JPY 100 Million and standard interest from the 4th year

5) Loan period: 20 years for equipment investment / 15 years for working capital

Additional special loan for SME under special business program (Maru-Kei Yushi)

1) SMEs under special business program of the local or regional Chamber of Commerce

2) Decrease of the last monthly net sale by more than 5% compared to the same month of the previous year

 

1) Maximum loan amount: JPY 20 Million (general loan) + 10 million JPY (additional special loan)

2) Objectives: working capital, equipment investment

3) Pledge/guarantor: N/A

4) Interest: 0.31% for the first 3 years and standard interest from the 4th year

5) Loan period: 10 years for equipment investment / 7 years for working capital

Safety Net Loan

Decrease of the last monthly net sale by more than 5% compared to the same month for the previous year

or

Decrease of the last monthly net sale more than 5% compared to a) the last 3-month average net sale or b) the net sale of December 2019 or c) the average net sale from October to December 2019

1) Maximum loan amount: JPY 60 Million (general loan) + JPY 10 Million (additional special loan)

2) Objectives: working capital, equipment investment

3) Pledge/guarantor: N/A

4) Interest: standard interest – 0,9% for the first 3 years for JPY 30 Million and standard interest from the 4th year

5) Loan period: 20 years for equipment investment / 15 years for working capital

 

The Japanese Government has also announced an amendment of the current public budget law for 2020 and is ready to provide some new additional protection measures for the economy (including some tax relief, guarantees etc.).


[1] Category n°1: Chain bankruptcy prevention guarantee / Category n°2: Guarantee for the restriction of business due to the restructuring of the business partner/ Category n°3: Sudden accident disaster guarantee / Category n°4: Natural disaster guarantee/ Category n°5: Guarantee for sectors in business difficulties / Category n°6: Guarantee for bankruptcy of financial institutions / Category n°7: Guarantee for the adjustment of financial transactions due to rationalization of the loans by the financial institutions / Category n°8: Guarantee for transfer of loan between the financial institutions

[2] JFC provides multiple types of loans for many types of business. For more information, please follow the link here (Japanese only).

 

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