Declining court reorganization, and ending the business by voluntary closure (1997)

Not the market’s verdict, but an administrative one

Yamaichi was not insolvent. People close to the case say it was still not insolvent at the end of March 1998. There is a procedural knot here. An insolvent broker may not close voluntarily and cannot draw on a Bank of Japan emergency loan; nor can such a loan be extended once a criminal case is under way. To a company facing both possibilities, the Ministry of Finance assigned the procedure of voluntary closure. After the investigation report was published, the securities bureau chief, Nagano Atsushi, said the instruction had come from Prime Minister Hashimoto Ryutaro and Finance Minister Mitsuzuka Hiroshi, and answered that the core of the matter concerned state secrets. This reads less as the market delivering a verdict than as a decision handed down by the administration.

That said, it cannot be claimed the procedure served no one. Repaying customer assets was backed by special financial measures led by the ministry, and those who had entrusted money to the firm were spared losses; whether court reorganization would have produced the same protection is unknowable. The price, though, was that a Bank of Japan emergency loan went unrecovered for the first time in 1999, and the bankruptcy proceedings took until 2005 to conclude. A company rescued by that instrument in 1965 damaged the instrument itself on the way out.