The new Bankruptcy Law, aimed at providing protection for employees of bankrupt firms and speeding up bankruptcy procedures, was enacted Tuesday.
The House of Representatives unanimously passed the law, replacing decades-old legislation, at a plenary session.
The House of Councilors had approved it earlier.
The law is scheduled to take effect within one year of its promulgation.
The existing 1922 Bankruptcy Law places low priority on payment of salaries and retirement allowances due to employees in the event of a corporate bankruptcy.
In many cases, they go unpaid.
The new law will give priority to payment of salaries due for the three months before a court decides to initiate bankruptcy procedures as well as the payment of retirement allowances equivalent to three months' salary.
In the event of a major bankruptcy, defined as the collapse of a company with at least 1,000 creditors, the new law allows a company, regardless of its location, to file for bankruptcy proceedings with the Tokyo and Osaka District courts, which have better resources and more expertise on bankruptcy technicalities than other courts.
Currently, procedures may be started in a court that has jurisdiction over the area where the company's main operations are located.
Under the new law, courts will also be empowered to issue orders to protect the assets of a bankrupt company.