Update : Feb. 10, 2014
[Tokyo Stock Exchange, Inc.]
TSE has designated the stock as a Security on Alert and imposed a listing agreement violation penalty as follows.
|1. Issue Name||
LCA Holdings Corporation stock
(Code: 4798, Market Division: 2nd Section)
|2. Date of Designation of Security on Alert||Feb. 8, 2014 (Sat.)|
Securities Listing Regulations, Rule 501, Paragraph 1, Item 2, Sub-item a
(Due to falling under a case where the listed company made a false statement in its securities report, etc., and TSE deems that the improvement of the internal management system, etc. of such listed company is highly necessary)
|3. Listing Agreement Violation Penalty Total||JPY 10 million|
Securities Listing Regulations Rule 509, Paragraph 1, Item 1
(Due to falling under a case where TSE deems that the listed company has been in violation of the matters to be observed when conducting disclosure and that such listed company has undermined shareholder and investor confidence in the TSE market)
On December 19, 2013, LCA Holdings Corporation (hereinafter "the Company") received an order from the Director General of the Kanto Finance Bureau to submit amendment reports, etc. to correct false statements made in the Company's securities reports and quarterly reports for the fiscal year ended May 2009 through to the first quarter of the fiscal year ending May 2014 as well as securities registration statements submitted for the same periods. The Company submitted amendment reports, etc. without attaching audit reports, etc. by an independent auditor on December 26, 2013, and subsequently resubmitted such amendment reports, etc. with such audit reports, etc. on February 6, 2014.
The Company had fallen into liabilities in excess of assets of JPY 1.051 billion at the end of the fiscal year ended May 2008 and had been placed in a grace period pertaining to the delisting criteria on liabilities in excess of assets until the end of the fiscal year ended May 2009. In a bid to resolve the situation, the Company issued a total of JPY 2.915 billion in new shares, including in-kind contributions in the form of real estate property, in a third-party allotment with a payment date of May 18, 2009.
However, the appraisals of a portion of such in-kind contributions of real estate property were based on overstated rental income, which led the Company to overstate real estate for investment and net assets in its financial statements. Based on these overstatements, the Company had positive net assets in the fiscal year ended May 2009 and the fiscal year ended May 2011. However, as a result of the amendments, the Company was found to have been in liabilities in excess of assets for the four consecutive fiscal years from the fiscal year ended May 2008 through to the fiscal year ended May 2011.
This case resulted from the inflated valuations of said real estate properties by overstating rental income, which was based on a request made by a representative director of the Company and related employees in the course of negotiations regarding in-kind contributions, so that the Company could come out of liabilities in excess of assets in the second fiscal year. The individuals involved in the improprieties were deemed to be severely lacking in compliance. In addition, the members of the board and statutory auditor had not adequately supervised such individuals and failed to prevent the improprieties, and the statutory auditor subsequently recognized unpaid business entrustment fees related to entrustment agreements, which were concluded to cover up the shortfall in rental income, as off-the-book liabilities. In consideration of such facts, TSE deemed that the Company's internal management system was not sufficiently effective. Furthermore, the fact that the Company remains in a situation where it is unable to provide a proper explanation of causes, etc. of the incident is deemed to be a result of inadequacies in its internal management system related to fulfilling its obligation to explain disclosed content. As such, TSE deems that improvements to the Company's internal management system to be highly necessary and designates its stock as a Security on alert.
Additionally, this was a case where a failure to properly appraise the value of the real estate property in in-kind contributions, despite separate agreements concluded to make up for the rental fees of said real estate properties in the course of negotiations regarding in-kind contributions by the representative director and related employees at the time resulted in the Company being found to have been in liabilities in excess of assets for four consecutive fiscal years. As such, TSE deems that this case has undermined the confidence of investors in the TSE market and shall impose a listing agreement violation penalty on the Company.
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