The act to amend the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors (the "Subcontract Act"), which will be renamed to the Act Against Delay in Payment of Fees, etc. to Small and Medium-sized Entrusted Business Operators in Manufacturing and Other Specified Fields (the "Amended Act"), will come into effect on January 1, 2026. While the Subcontract Act had undergone numerous minor revisions through previous amendments, the Amended Act represents a comprehensive overhaul that is distinct from those prior revisions. It goes beyond merely altering the act's name, imposing significant changes that compel large procuring enterprises to review their practices and transform their operations.

The main terminology changes under the Amended Act are as follows.

The amendments to the Subcontract Act cover a wide range of points, but the main points expected to have a significant impact on practical operations are as follows.

Similar to the Subcontract Act, the Amended Act defines the scope of applicable consignment transactions based on both (a) the size of the business operators (the "Size Criteria") and (b) the nature of the transaction (i.e., the type of consignment). It is important to note that the amendments significantly expand the scope of applicable consignment transactions compared to the Subcontract Act, as outlined in points (1) and (2) above.

(a) Size Criteria

Previously, the Subcontract Act only used a business operator’s capital as the criterion for determining whether such business operator was subject to the Subcontract Act. However, the Amended Act establishes an alternative requirement based on the number of employees regularly employed by the business operator (Article 2, Paragraph 8, Items 5 and 6; Paragraph 9, Items 5 and 6). This employee-based criterion applies when the capital criterion does not apply. Please note that the existing capital criterion remains unchanged. The Size Criteria under the Amended Act are as follows:

• (i) manufacturing, (ii) repair, (iii) information-based product creation (limited to program development), (iv) service contract (limited to transportation, warehousing, and information processing), or (v) specific transportation

• (i) information-based product creation (excluding program development) or (ii) service contract (excluding transportation, warehousing, and information processing)

(b) Nature of the Transaction (I.e., Type of Consignment)

The Subcontract Act applies to 4 categories of consignment: (i) manufacturing, (ii) repair, (iii) information-based product creation, and (iv) service contract. The Amended Act newly adds "Specific Transportation" as a 5th category (Article 2, Paragraphs 5 and 6). Specific transportation refers to the consignment of transportation to the counterparty (including any party designated by such counterparty) in transactions involving the sale, manufacture, repair, or creation of the subject matter (in the case of information products, the item on which the subject information product is recorded, inscribed, or embodied) when the consignor sells, manufactures, repairs, or undertakes the creation of information products as a business.

As outlined above, the amendments under the Amended Act have a significant impact on business practices. Therefore, companies should promptly review their consignment transactions and take appropriate measures.