MIYAZAKI – The Miyazaki District Court on Monday ruled that Miyazaki Gov. Suketaka Matsukata does not have to return 6 billion yen in subsidies the prefecture provided to the Seagaia resort complex a year before it went bankrupt.
Seagaia filed for court protection in February 2001 with liabilities of 326.1 billion yen. It was taken over by U.S. investment fund Ripplewood Holdings LLC later the same year.
The ruling came in a suit filed in May 2001 by 723 residents of the prefecture who noted that the company’s main banks had stopped extending new loans to the firm in September 1999.
The suit also points out that the resort complex was owned by a company engaged in tourism and entertainment, claiming the business did not serve the public interest.
They contended that subsidizing Phoenix Resort Ltd., the resort’s operator, was a waste of money and violated the Local Autonomy Law.
In handing down the ruling, presiding Judge Akihiro Nakayama reasoned that even if Seagaia’s operations did not serve the public interest, the resort itself served as the core of Miyazaki’s tourism industry. Therefore, the judge said, public financial support of Seagaia served the public interest and was legal.
As for the fact that the subsidies continued even after banks stopped extending fresh loans, the judge ruled that the complex could have been rescued and that providing operating funds after limiting the period in which Seagaia should submit a business reconstruction plan was acceptable.
The judge also said the 6 billion yen was fair, as it was not illegal to pay out different amounts of subsidies in line with the economic effects of the projects in question.
The plaintiffs said they plan to appeal. Ryuji Nishida, a lawyer who is one of the plaintiffs, said that while the court recognized that the subsidies were in the public interest, it failed to provide any justification for the entire 6 billion yen.
He added that he is concerned that the ruling might serve as a precedent that leads to more lax use of taxpayers’ money across the nation.
Previously, the resort complex was partly owned by the Miyazaki Prefectural Government.
The prefecture provided the subsidies in January 2000 to a foundation set up for assisting the resort complex, which was a joint public-private venture at the time.
The governor had argued that the subsidies helped the resort to continue and led to the protection of the prefecture’s tourism industry and served the public interest.
The lavish Seagaia resort includes hotels, golf courses, a convention hall and a domed beach with artificial waves, though the complex’s new owner has shut down the dome.
The plaintiffs had argued that the prefecture continued to extend the subsidies because it wanted to host a Group of Eight foreign ministerial gathering in July 2000.
Michael Glennie, president of Phoenix Resort, said after the ruling that the establishment of the foundation was very important in continuing the operations and rehabilitating the complex. He added that he was thankful for the support provided by the people of the prefecture.
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