Amid mounting public criticism, ailing department chain operator Sogo Co. and its group companies have filed for court-mandated rehabilitation with the Tokyo District Court, top officials of the firm announced Wednesday evening.

The move means Sogo has given up on a controversial bailout plan that would have had the state spend public funds to keep a private firm afloat. The Sogo group has a total debt load of 1.87 trillion yen, according to the firm.

Sogo is the first major Japanese department chain operator with nationwide operations to go into bankruptcy since World War II.

"We reached a conclusion that we can not help but to rebuild our business within a legal framework," Kyoichi Yamada, president of Sogo told a press conference. "We will make the utmost efforts to rebuild our company by receiving support from parties concerned, and guidance from court-appointed managers. We would like to ask for the public's understanding."

The Osaka-based department store had asked 73 creditors to forgive about 630 billion yen of its debt in a bid to survive. Most eventually gave in to the request, especially after the Deposit Insurance Corp. stepped in.

The DIC, a semigovernmental bank safety net, inherited some 200 billion yen in loans to Sogo from Shinsei Bank, formerly Long-Term Credit Bank of Japan, and agreed to forgive 97 billion yen of the amount. But criticism over the scheme rose as the public rebelled against yet another injection of taxpayer money to preserve a shaky private firm whose bankruptcy threatens to have a large-scale affect on business partners and employees.

Yamada cited mounting public criticism as the reason for giving up the original rebuilding plan in favor of court-managed rehabilitation. He said the criticism would virtually make it impossible for the department store to recover.

"We judged that it would be difficult to rebuild our business while we ask to forgive our debts. While public criticism rose, our corporate image had already been seriously damaged, and we are now faced with a serious business situation," Yamada said.

"If this situation is prolonged, we will be in a critical situation because taxpayers are our customers. The initial rebuilding plan has lost its foundation, and we could not help but judge that we are unable to carry out the plan," he said.

Sogo reached the decision after Shizuka Kamei, policy affairs chief of the ruling Liberal Democratic Party, strongly asked Sogo to withdraw the debt-waiver request.

Under the court-managed rehabilitation program, Sogo will seek a speedy rehabilitation, which may begin as soon as in six months, a senior Sogo official said.

FRC was right on debt forgiveness plan: Kuze

The Financial Reconstruction Commission was right as of June 30 in approving the government plan to partially forgive loans to Sogo Co., FRC chairman and Cabinet minister Kimitaka Kuze said Wednesday.

But, "A change in the environment has been so great for the past two weeks," Kuze said, referring to the growing criticism from the general public and the ruling coatlion.

"I think there were emotional reactions from the public on why only Sogo would be rescued," he said.

Kuze said although the FRC does not rule out approval of any future debt-forgiveness plan, it "needs to judge such a plan with great caution."

He said the FRC could have explained more to the Liberal Democratic Party-led ruling coalition and the general public about the government decision on debt forgiveness.

But the lack of public understanding of the scheme was also due to the complexity of the issue, he added, pointing to the DIC's contract with an international consortium to sell the nationalized Long-Term Credit Bank of Japan, later renamed Shinsei Bank.

He said taxpayers' burden will be larger than it would have been under the initial debt-forgiveness scheme, noting the amount of additional burden will depend on Sogo's own effors and cooperation from its creditors, particularly the Industrial Bank of Japan.

The FRC board is a five-member body made up of four representatives from the private-sector plus a Cabinet minister. Kuze took the post four days after the controversial approval of the state-run Deposit Insurance Corp. on debt forgiveness.

TSE to delist department-store operator Sogo

The Tokyo Stock Exchange (TSE) said Wednesday it will delist department-store operator Sogo Co., which filed for a court-mandated bailout the same day, from the First Section on Oct. 13.

Trading in Sogo stock will be conducted in the adjustment post for three months starting today (Thursday), the TSE said.