Learning from Bankruptcy

Introduction.

"World Bankruptcy Illustrated Book," Mr. Hiroyuki Araki (President of Learning Design Inc.) answers questions such as "Why did the bankruptcy occur? "What can we learn from it? In his recent book, he takes a managerial rather than an academic approach to 25 case studies of bankrupt companies, without going into the procedural and legal aspects of bankruptcy itself.

The word "bankruptcy" is mainly used for corporate companies, but due to the recent extended shutdown caused by the new coronavirus, "bankruptcies" are rapidly increasing nationwide, not only for corporations but also for individual business owners such as restaurants and inns, in the form of "closure" and "store closing.

By the way, the word "bankruptcy" has a strong image of a permanent cessation of business without a second chance, but in reality, there are cases where a company aims to revive itself by taking legal bankruptcy procedures as early as possible, and these cases are included in the term "bankruptcy. Mr. Araki's book also covers both of these patterns.

I have tried to analyze some of these 25 case studies in procedural and legal theories in the past, so I would like to make some comments on some of them, including quotations from books, in a chatty way next time.

1) “Sogo” ・・・Part 1

On Wikipedia, Sogo is "a Japanese department store operated by Sogo & Seibu, a subsidiary of Seven & i Holdings Co. It is a Japanese department store. As of October 2019, there are only seven Sogo stores in Japan: Omiya, Kawaguchi, Chiba, Yokohama, Seishin, Hiroshima, and Tokushima. From 2020, only stores in the Tokyo metropolitan area will be open, except for the Hiroshima store, and from 2021, only the four core stores will be open. From 2020 onwards, only stores in the Tokyo metropolitan area will be open, with the exception of the Hiroshima store. At its peak, the company had more than 20 stores in Japan alone, and was actively expanding overseas.

By the way, Sogo was founded in 1830 as a second-hand clothing store called Yamatoya by 26-year-old Ihei Jugo in Osaka. In 1919, the company began full-scale operations.

In 1919, Sogo entered the department store business in earnest, and is said to have formed the prototype of today's Sogo. However, in 1935, Sogo was hit hard by the Showa Depression and was unable to finance the renovation work, and in order to obtain funds, the majority of the Jugo family's shares were transferred to Miyakichi Itaya of the Hokkaido Zaibatsu, and the family eventually withdrew from management.

After the war, Sogo fell behind Daimaru and Mitsukoshi due to confiscation by the Occupation Forces, and once again fell into a financial crisis. The key to Sogo's expansion and growth has been its success.

The key to Sogo's expansion and growth was the creation of a cycle in which the company would buy up land in advance in the vicinity of planned store openings, increase its assets by raising land prices through store openings, and then raise funds from banks by guaranteeing the debt of the new stores with the help of an independent corporation that became profitable through collateral. (The World Bankruptcy Book) (The above quote is from "The World Bankruptcy Book")

It was said at the time that the east exit of Yokohama Station, where Sogo's Yokohama store is located, was significantly inferior to the development of the west exit area, including Takashimaya, and that building a store at the east exit would surely fail. However, the opening of the huge Yokohama store (with an investment of about 59 billion yen) at the east exit, connected via an underground shopping mall, created a new flow of people heading for Sogo, contrary to most predictions.

Similarly, when the Chiba Store was opened, it was opposed by the local community around Chiba Station, which was crowded with small stores, saying that it would damage the local economy, but it succeeded due to its location directly connected to the station. (The old store is located in front of the current Chiba Sogo store.

However, with the bursting of the bubble economy, the business model of "buying up land in advance in the vicinity of planned store openings, and increasing assets and securing collateral by raising land prices through store openings" began to turn completely the other way, transforming from a "success model" to a "collapse model. This point is similar to the former Daiei and Yaohan, which became part of Aeon.

2) "Sogo" ・・・Part 2

In July 2000, the Sogo Group companies decided to file for the Civil Rehabilitation Law at the same time. Before the Civil Rehabilitation Law was enacted, the Corporate Reorganization Law was virtually the only method for restructuring bankruptcies in Japan. The requirements for filing were also relatively high. (Although it could be said that the Act was a restructuring type, it had many flaws.

On the other hand, in the United States, there is the Federal Bankruptcy Code, which establishes Chapter 11 as a reorganization-type procedure, allowing companies to file for bankruptcy from the stage of "possible insolvency. The system also provided for a practical restructuring frame, such as "automatic stay," "DIP financing (special financing until the plan is approved)," and "bankruptcy court (set up separately from the court for general litigation)," and a large number of bankrupt companies have used this system.

After the collapse of the bubble economy, the number of large-scale bankruptcies in Japan increased, and the Bankruptcy Disposal and Collection Law was reviewed, which led to the abolition of the "Reconciliation Law" and the enactment of the "Civil Rehabilitation Law" based on Chapter 11. "Sogo filed for the Civil Rehabilitation Law and aimed to rebuild itself, and the Seibu Group became its sponsor.

Shigeaki Wada, former chairman of the Seibu Department Store, who went into Sogo to restructure the business, sent out a message to employees saying, "Outsiders have a low opinion of Sogo's employees because they only know their own company and are idolatrous frogs in the well. ...... If you don't tell them what to do, they won't do anything.

In contrast to Sogo, which was able to restructure its business, the financial problems of the Seibu Department Store began to emerge around 2002. On January 14, 2003, Seibu Department Store requested a debt forgiveness of 230 billion yen from Mizuho Corporate Bank, Bank of Tokyo-Mitsubishi, Credit Saison, Shinsei Bank, and other lenders, and in February, announced the "Seibu Department Store Group Restructuring Plan" based on the Guidelines for Private Liquidation. In February, we announced the "Seibu Department Store Group Restructuring Plan" based on the guidelines for private liquidation, and started to restructure our business.

As a result, "Seibu Department Store" reduced its capital and Mizuho Corporate Bank and Credit Saison provided financial support through a debt-equity swap (DES). As a result, Sogo and Seibu Department Stores were able to integrate their operations.

On December 26, 2005, Seven & i Holdings announced that it would acquire Nomura Principal Finance's shares in Millennium Retailing (formerly Sogo Co., Ltd.), which became a subsidiary of Seven & i Holdings on February 1, 2006, and a wholly owned subsidiary through a share exchange on June 1, 2006. On February 1, 2006, it became a subsidiary of Seven & i HD, and on June 1, 2006, it conducted a share exchange to become a wholly owned subsidiary. In 2007, Mr. Shigeaki Wada stepped down as Chairman of Millennium due to health reasons.