1. The first sentence of Article 405 of the former Debtor Rehabilitation and Bankruptcy Act (amended by Act No. 11828, May 28, 2013) provides that “The avoidance power may not be exercised upon the lapse of two years from the date on which bankruptcy is declared.” Article 396(1) of the same Act provides that “The avoidance power shall be exercised by the trustee in bankruptcy by means of lawsuit, claim for avoidance or defense.”

Meanwhile, Article 406(1) of the Debtor Rehabilitation Act provides that “When a lawsuit filed by a bankruptcy creditor under Article 406(1) of the Civil Act is pending in the court at the time the bankruptcy is declared, the proceedings shall be interrupted until the takeover of the lawsuit or the termination of the bankruptcy procedure.” The first sentence of Article 347(1) which is applicable mutatis mutandis under Article 406(2) of the same Act provides that “The lawsuit pending in the court at the time the bankruptcy is declared may be taken over by the bankruptcy trustee or the other party.”

As above, the Debtor Rehabilitation Act provides that a lawsuit filed by a creditor for revocation shall be interrupted when the court is pending at the time the debtor is declared bankrupt. This is to prevent the creditor from exercising his/her right of revocation after the bankruptcy is declared bankrupt, taking into account the following: (a) although the creditor’s revocation lawsuit is not a party to the bankruptcy debtor who is declared bankrupt, the outcome of the lawsuit may directly affect the increase or decrease of the bankruptcy estate; and (b) the bankruptcy creditor is prohibited from exercising his/her right of revocation without resorting to the bankruptcy procedure (see Article 424 of the Debtor Rehabilitation Act).

Instead, the Debtor Rehabilitation Act may take over the creditor revocation lawsuit filed by the bankruptcy creditor after the bankruptcy trustee is declared against the bankrupt debtor.