OSAKA — A citizens’ group representing individual investors on Thursday called on Sogo Co. to seek damages from its former executives to recover losses stemming from irrecoverable loans to fur dealers, the group said.
Sogo is currently under court protection from creditors.
The Osaka-based nonprofit group, called Kabunushi (Shareholder) Ombudsman, said Sogo lent some 5.6 billion yen to six fur dealers between 1994 and 1995, allegedly knowing they were in such dire financial problems that they were unlikely to be able to repay the loans.
Based on minutes from Sogo board meetings, the group concluded that 4.1 billion yen of the amount has been deemed irrecoverable and some Sogo executives were aware this could constitute breach of trust.
Kabunushi Ombudsman — whose members include lawyers, accountants and academics — sent a note Thursday morning advising Sogo to seek from former executives around 4.7 billion yen in damages to cover 4.1 billion yen in irrecoverable loans and around 60 million yen in dividends Sogo paid to shareholders in November 1994 when the company was not making profits.
On Wednesday, Sogo filed a lawsuit seeking some 2.7 billion yen in damages from former Sogo Chairman Hiroo Mizushima and two other executives over losses the firm suffered due to their alleged fictitious transactions with an affiliate.
According to Kabunushi Ombudsman’s request submitted to Sogo, the department store chain had long dealt with the six fur dealers, and had become aware of their deteriorating earnings as early as November 1994, when they requested a delay in the settlement of bills.
But Sogo continued to extend loans monthly, expanding the balance of loans to 5.6 billion yen in June 1995.
The six fur suppliers went bust between March 1995 and November 1997, either filing for liquidation or bankruptcy.
The extent of Sogo’s loss has not been confirmed because claims on the loans to two of the six fur companies have been transferred to Sogo subsidiaries, according to the group.
But the request said a minimum of around 4.1 billion yen in loans to the remaining four companies should be deemed as losses.
At a board meeting in March 1995, some directors pointed out the possibility of breach of trust concerning the loans and Sogo subsequently stopped extending them, the document said.
On Sept. 7, Kabunushi Ombudsman sent a note to Sogo, in preparation for a lawsuit, asking the firm to hold executives responsible for Sogo filing for court protection from creditors in July. In that request, the group wants Sogo to seek 5 billion yen in damages from Mizushima alone.
The group also said Thursday that it suspects former Sogo executives attempted to conceal the company’s deteriorating balance sheets as far back as 1996, when the Finance Ministry was planning to instruct companies to expand the scope of their consolidated business results.
In January 1996, Sogo owned 15 percent of Chiba Sogo, the group’s real-estate arm and a key shareholder in individual Sogo department stores, according to the group. At that time, Sogo was not required to include the financially frail company in its consolidated financial report.
But Moriichi Inoue, then vice president, told the company’s board meeting in January 1996 that Chiba Sogo would have to be covered by the firm’s consolidated report, as a result of the changes planned by the ministry.
The group said Inoue proposed Sogo’s stake in Chiba Sogo be sold to a subsidiary.
The proposal was approved by the board, but the plan was eventually withdrawn in February 1997 due to opposition from creditor banks with which Sogo had used its stake in Chiba Sogo as collateral for loans, the group said.
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