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Kanebo tries to save face after scandal

Two years ago, Kanebo, the sprawling and debt-heavy textiles, food and cosmetics conglomerate at the centre of Chuo Aoyama PwC's present difficulties, was set to be taken over for 400 billion yen ($4.7 billion) by Kao, Japan's biggest maker of home products. But at the last moment Kanebo, weighed under by Y520 billion of debt, reneged on the deal.

Rather than selling to Kao, Kanebo turned to the Industrial Revitalisation Corporation of Japan (IRCJ).

The state-run turnaround body spun off Kanebo's profitable cosmetics division into a separate company. Under the IRCJ, Kanebo was recapitalised through the sale of its cosmetics division for about Y350 billion, a debt waiver of Y98 billion and a third-party new share allocation of Y50 billion.

An in-house committee set up by new management in April 2004 found that former executives had altered shareholder equity figures, delayed booking expenses and committed accountancy fraud.

The company was last year delisted from the Tokyo Stock Exchange after admitting to accountancy fraud over a four-year period.

The crisis deepened in August last year, when three former Kanebo executives - including its former president - were arrested for allegedly cooking the company's books.

The following month, Tokyo prosecutors arrested four accountants at Chuo Aoyama PwC for allegedly helping Kanebo executives falsify accounting reports. Chuo Aoyama PwC had audited Kanebo's books for more than 30 years.

The four accountants were suspected of working together with two Kanebo executives to produce false consolidated financial statements showing that Kanebo's assets exceeded its debts in fiscal 2001 and 2002.

In reality, its debts exceeded its assets by Y81.9 billion and Y80.6 billion, respectively.