NIS Group : Notice Regarding Petition for Commencement of Civil Rehabilitation Proceedings [ PDF 122KB ]

(Translation)
To whom it may concern

May 9, 2012

Notice Regarding Petition for Commencement of Civil Rehabilitation Proceedings
We hereby announce that, on May 9, 2012, NIS Group Co., Ltd. (the "Company") resolved at its extraordinary board of directors' meeting that it would file a petition for the commencement of civil rehabilitation proceedings, and made such petition in the Tokyo District Court (the "Court"). The Court accepted the petition on the same date, and the Court issued a temporary restraining order, including a prohibition of payments, a comprehensive prohibition order and a supervision order on the same date, and Mr. Minoru Uchida, an attorney-at-law, has been appointed as a supervisor (the "Supervisor").
We would like to express our sincere apologies to our customers, creditors, shareholders, and all other people who have a relationship with the Company for the great inconvenience this may cause. All officers and employees of the Company intend to do our best to rehabilitate the Company's businesses under the supervision of the Court and the Supervisor. We ask for your kind understanding and support of the proceedings.
1. Course of and Grounds for Petition
(1) Deterioration of business environment surrounding the Company's businesses
Since its incorporation in 1960, the Company had aimed to provide financial services that correspond to the changes in the situation of society. In 2004, in order to provide integrated financial services focused on mid-sized enterprises, the Company sold its consumer loans receivable and changed its business model from the one centered on the loan business to one comprised of more diversified businesses, including leasing business, credit guarantee business, servicing business, securities business, real estate business, and businesses in China, that was clearly different from the business models of other non-bank finance companies.
However, in 2006, the environment surrounding non-bank finance businesses became more severe than expected, due to a series of adverse events including the Supreme Court Judgment concerning the so-called deemed valid payments provision under the Money Lending Business Act regarding the repayments of interest exceeding the interest rate previously allowed under the Interest Rate Restriction Law, the legislation of the Money Lending Business Act as amended, and the increasing and large number of claims seeking refunds of interest paid in excess of the interest rate previously allowed under the Interest Rate Restriction Law. In addition, due to the petition for commencement of civil rehabilitation proceedings, filed by a listed non-bank finance company in September, 2007, the Company's rating was downgraded and the Company became unable to issue bonds or commercial paper. Also, because of the effect of issued with sub-prime loans, financing from European and American financial institutions became difficult. The creditability of the Company significantly deteriorated and refinancing with the Company's existing lenders became virtually impossible. As a result, the Company had no choice but to downsize the scale of its businesses by refraining from origination of new loans in its loan business.
(2) Deterioration of financial condition following the financial crisis
In such a situation, the Company moved forward with changing its operational assets
portfolio and promoted drastic restructuring of its business structure, in accordance with the management reform program for the purpose of improving operational efficiency. Moreover, in December, 2007, the Company entered into a master agreement regarding a strategic investment and business alliance with TPG, a United States private equity firm, and in February 2008, the Company received a capital injection of 20 billion yen, and its overseas subsidiary received a capital injection of approximately USD 102 million. However, because of the confusion and the credit crunch of the global financial and capital markets triggered by the sub-prime loan issues in the United States, financial institutions' financing stance turned severe, and the domestic real estate market's liquidity declined. As a result, the Company's cash flow and financial results became further aggravated. Consequently, the Company became unable to receive additional support by TPG, and the Company and TPG terminated their capital and business alliance in December, 2008.
(3) Improvement of operations by financial support did not work out
In order to solve this financial issue triggered by the financial crisis (and other similar issues) and to restructure a continuous and stable financial base, the Company entered into a strategic capital and business alliance agreement with Small and Medium-sized Enterprises Guarantee Co., Ltd. in December 2008. Based on this agreement, the Company was capable of receiving the necessary financial support from Small and Medium-sized Enterprises Guarantee Co., Ltd. and its major lender, Incubator Bank of Japan, Limited ("IBJ"), and worked on stabilizing its financial base by reducing its interest-bearing debts, through disposition of assets and other methods. However, in September 2010, IBJ was put under the control of the Deposit Insurance Corporation of Japan, due to an administrative disposition of the Financial Services Agency, and the Court commenced civil rehabilitation proceedings regarding IBJ. Further, in October 2010, the Court also determined that civil rehabilitation proceedings should be commenced for Small and Medium-sized Enterprises Guarantee Co., Ltd., an entity with which the Company was in a capital and business alliance relationship. As a result of the bankruptcies of these major trade connections, the Company's financial standing deteriorated.
Under such circumstances, in June 2010, the Company received an offer from Neoline Holdings Co., Ltd. ("NLH") that NLH intended to consider providing financial and operational support to the Company, and NLH accepted the Company's formal request that NLH provides such support to the Company and subscribed for the Company's new shares through third-party allotment, conducted in August, 2010. Although NLH's group provided the Company with continuous support, including financial support, after the subscription of new shares, the Company's status further deteriorated, and no extension was allowed for the borrowing from the Resolution and Collection Corporation on August 1, 2011, the borrowing from an affiliate of Neoline Holdings Co., Ltd. on September 30, 2011, and the borrowing from the Chiba Kogyo Bank, Ltd., on October 31, 2011.
(4) Negative net worth and discontinuance of money lending business
In addition, for the fiscal year ended March 2011, as a result of the bankruptcy of IBJ, the Company recorded loss of JPY 1,861 million on impairment of the full value of IBJ's shares, and provided allowance for loan loss for the entire amount of the Company's loan of JPY 6,650 million to IBJ. Furthermore, for real estate for sale, JPY 4,822 million was recorded as an appraisal loss, and an allowance for loan loss of JPY 2,543 million was provided for loans receivable; consequently, an operating losses of JPY 10,741 million, an ordinary losses of JPY 11,777 million, and net loss of JPY 20,508 million were recorded for the fiscal year ended March 2011. Because of the abovementioned losses, the Company failed to meet the net asset requirement provided for in the Money Lending Business Act and the Company discontinued its money lending business as of December 31, 2010. In addition, since the Company recorded JPY 13,509 million of negative net worth as of March 2011, the
Company received a notice from Tokyo Stock Exchange, Inc. to the effect that the common stock of the Company would be reassigned to the 2nd Section from the 1st Section of the market, and that the stock would be subject to a grace period pertaining to delisting (liabilities in excess of assets). The stock was reassigned to the 2nd Section of the market on August 1,
2011.
(5) Determination to file a petition for civil rehabilitation proceedings
Under the circumstances mentioned above, until the end of March, 2012 the Company had negotiated with major creditors in order to resolve the negative net worth and to prevent delisting of the Company's shares, and had simultaneously elected candidate for sponsors to support the Company's business, and negotiated with such major creditors and sponsor candidates to agree on a restructuring plan. However, it turned out to be highly unlikely that the Company could obtain consent to the restructuring plan from all of the major creditors. Therefore, in order to effectively restructure the businesses of the Company, the Company filed a petition for commencement of civil rehabilitation proceedings.
2. Aggregate Amount of Indebtedness (Amount on the a non-consolidated balance sheet as of
December 31, 2011)
JPY 50,823 million (This amount may increase in the course of civil rehabilitation proceedings.)
3. Future Outlook
The Company intends to use its best endeavors to restructure its businesses under the supervision of the Court and the Supervisor, in cooperation with stake-holders, including creditors. The Company is also considering the possibility of selecting sponsors that support the restructuring of the businesses of the Company.
4. Application for Examination of Restructuring Plan, Etc., Provided in the Securities Listing
Rule of the Tokyo Stock Exchange
The Company has no intent to file an application for the examination of restructuring plan, etc., provided in Article 605, Paragraph 1 of the Securities Listing Regulation of the Tokyo Stock Exchange.
< Contact concerning this notice > NIS Group Co., Ltd.
(Call center for rehabilitation proceedings) [phone]
(Reference)
1. Outline of the Petition

(1) Date of petition	May 9, 2012
(2) Competent court	The Tokyo District Court
(3) Name of case	Heisei 24, (Sai) No. 62
(4) Filing counsels for the petitioner	Hiroshi Mori, attorney-at-law, and 8 other attorneys. Nishimura & Asahi Ark Mori Building, 1-12-32 Akasaka, Minato-ku, Tokyo, 107- 6029
(5) Supervisor	Minoru Uchida, attorney-at-law

2. Outline of the Company

(1) Trade name	NIS Group Co., Ltd.
(2) Address of headquarters	5-7-6 Chifune-machi, Matsuyama-shi, Ehime * Above is the registered address of the headquarters. The actual headquarters business is conducted at the Tokyo headquarters (Oak Minami-Azabu Building 7th and 8th floors, 3-19-23 Minami-Azabu, Minato-ku, Tokyo).
(3) Representative	Joji Harakawa, Representative Director and President
(4) Main businesses	Total financial service business Investment banking business/Foreign trade business Real estate business
(5) Stated capital	JPY 28,289 million
(6) Date of incorporation	May 27, 1960
(7) Status of shares	Common shares 481,188,550 shares
(8) Total number of shareholders (as of September 30, 2012)	57,428 shareholders
(9) Major shareholders and their holding ratio (as of September 30, 2012)	Name	Number of shares (thousand shares)	Holding ratio (%)
(9) Major shareholders and their holding ratio (as of September 30, 2012)	Neoline Holdings Co., Ltd.	235,294	48.90
(9) Major shareholders and their holding ratio (as of September 30, 2012)	Small and Medium-sized Enterprises Guaranee Co., Ltd.	19,899	4.14
(9) Major shareholders and their holding ratio (as of September 30, 2012)	J-NEXT Co., Ltd.	19,896	4.13
(9) Major shareholders and their holding ratio (as of September 30, 2012)	Crest Investments Co., Ltd.	19,896	4.13
(9) Major shareholders and their holding ratio (as of September 30, 2012)	Japan Innovation Co., Ltd.	19,896	4.13
(9) Major shareholders and their holding ratio (as of September 30, 2012)	L'espoir Investment Limited Partnership	19,500	4.05
(9) Major shareholders and their holding ratio (as of September 30, 2012)	Nisshin Building Co., Ltd.	15,492	3.22
(9) Major shareholders and their holding ratio (as of September 30, 2012)	Tatsuo Hirai	3,015	0.63
(9) Major shareholders and their holding ratio (as of September 30, 2012)	Mellon Bank Treaty Clients Omnibus (Standing proxy: Mizuho Corporate Bank, Ltd.)	1,329	0.28
(9) Major shareholders and their holding ratio (as of September 30, 2012)	Midori Furumitsu	1,000	0.21

(10) Directors	President and Representative Joji Harakawa Director of the Board Vice-president of the Board Toshioki Otani Director of the Board Yoichi Hirata Director of the Board Tatsuo Tanikawa Standing Statutory Auditor Nobuyuki Fukui Standing Statutory Auditor Mitsuji Ikeda Statutory Auditor Isamu Kobori Statutory Auditor Tsutomu Kasori
(11) Number of employees (as of March 31, 2011)	134 (consolidated)
(12) Labor Union	N/A
(13) Aggregate amount of indebtedness (amount on the consolidated balance sheet as of December 31, 2011)	JPY 46,796 million (This amount may increase in the course of civil rehabilitation proceedings.)
(14) Financial status and operating results of the last three (3) years (consolidated)
Accounting period	Year Ended March 2009	Year Ended March 2010	Year Ended March 2011
Net assets (million yen)	16,019	11,636	(6,248)
Total assets (million yen)	88,403	72,277	39,566
Net assets per share (yen)	18.78	14.72	(28.45)
Operating revenues (million yen)	32,170	10,866	6,611
Operating losses (million yen)	(36,328)	(7,172)	(10,741)
Ordinary losses (million yen)	(38,412)	(7,944)	(11,777)
Net losses (million yen)	(50,805)	(1,001)	(20,508)
Net losses per share (yen)	(212.03)	(4.18)	(53.35)

* Since the calculation of the consolidated financial position and the consolidated
operating results for the fiscal year ended March 2012 has not been completed, consolidated managerial indices for the last three years excluding such fiscal year are indicated.