(Updates with loan details in seventh paragraph.)
Oct. 31 (Bloomberg) -- Daio Paper Corp., a maker of Elleair tissue and toilet papers, fell to the lowest in two months after saying in a public filing it plans to sue former chairman Mototaka Ikawa for borrowing 10.7 billion yen ($141 million) from the company’s subsidiaries.
Daio Paper dropped 2.8 percent to 593 yen at the 3 p.m. close in Tokyo trading, the lowest since Aug. 19. The benchmark Topix Index fell 1 percent.
The company has lost 14.4 billion yen in value since it announced Ikawa would step down Sept. 16 over governance issues. It deferred the date of releasing its earnings date by 10 days to Nov. 14, to make time to assess the impact and to look into the past filings for corrections.
“We are very sorry for the troubles caused to the shareholders and stakeholders,” the company said. “We’ll do our best to confirm the details and disclose them as soon as we can.”
Daio Paper was established in 1943 in Iyomishima city in Ehime Prefecture, southwest of Japan, by Isekichi Ikawa, grandfather of Mototaka Ikawa. The company reported a loss of 8.1 billion yen for the 12 months ended March 31, according to data compiled by Bloomberg.
A company investigation revealed that Ikawa borrowed 10.7 billion yen in 26 installments between May 12, 2010 and Sept. 6, 2011 from seven Daio Paper’s subsidiaries, according to a statement on Oct. 28 after markets in Tokyo had closed. Ikawa had not paid back 5.93 billion yen as of Oct. 28, the statement said.
Of the 10.7 billion yen Ikawa borrowed, he received 2.25 billion yen from three subsidiaries through a company owned by Ikawa’s father Takao Ikawa, former president and chairman of Daio Paper, said the investigation report dated Oct. 27. The money was transferred to the son’s personal bank account immediately after the transaction was made, Daio Paper said.
A total of 4.75 billion yen had been repaid in cash and in stocks, while the figure may change after a review of the transactions, Daio Paper said. The purpose of the loans remains unclear and Daio Paper plans to take legal action against Ikawa, while it continues to seek repayment of all of the money, the statement said.
The company said Ikawa and his family members have majority stake in many of the subsidiaries so that it will also review the extent of its group companies. Daio Paper is also considering setting aside allowance for the loans for the second quarter, in case it can’t recover the money, according to the statement.
Takao Ikawa was the chief executive of Daio Paper’s 16 subsidiaries of all the 35 companies and Daio Shoko K.K. and ElleAir Sogyo K.K., which had a stake in Daio Paper, the report said. Daio Shoko and Elleair Sogyo are the biggest and fifth- largest shareholders of Daio Paper, holding 10.55 percent in total, according to data compiled by Bloomberg.
“The father and the son control Daio Paper from inside and though family businesses and employees had a sense of belongingness to them, rather than to the company,” the report concluded. “The employees were aware that the companies belonged to Ikawas. Since they were successful businessmen, it was natural to be obedient, which was the base of the case.”
Daio Paper said on Oct. 28 it would cut the executive payments by as much as 50 percent for three months and will set up a governance committee led by President Masayoshi Sako, to tighten the compliance. It asked Takao Ikawa to step down as adviser and removed Takahiro Ikawa, a bother of the former chairman, from its board.
--Editor: Brian Fowler, Indranil Ghosh
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