Eikaiwa

When Natasha Steele came to Japan from her native Australia earlier this year to teach English, she was looking forward to immersing herself in a foreign culture while earning a little money on the side. Now, after the spectacular collapse of her employer, Japan’s biggest English language school chain, Steele has found herself jobless, threatened with eviction and hungry. “I was taken out and afterward, she took me to a bakery and told me I could have anything I wanted,” she says of one charitable student. “She just wanted to know I had enough food for at least two weeks.”

For many college graduates from English-speaking countries, spending a few months in Japan teaching English is a time-honored tradition. But after Nova shut the doors of its more than 800 locations worldwide last week, that tradition is looking precarious. The closure has left over 300,000 Nova students deprived of their prepaid English lessons, and many of its 5,000 foreign language teachers, like Steele, unlikely charity cases.

Nova, started by CEO Nozomu Sahashi in 1981 upon his return from studying in Paris, grew into a publicly listed chain with over 900 locations at its peak. But things started to unravel for the company in April, after Japan’s Supreme Court sided with a former student who sued the school over tuition refunds. Its rapid expansion had been funded largely through a prepaid credit system, where students bought thousands of dollars worth of lessons up front and received only partial refunds in the event of midterm cancellations. A subsequent government investigation led to a partial suspension of Nova’s operations, at which point hundreds of thousands of students demanded a refund on their prepaid tuition. The result was the equivalent of a bank run: as students rushed to close their accounts, the company fell some $380 million in debt and in October filed for corporate rehabilitation, the Japanese equivalent of chapter 11 bankruptcy. This has made it impossible for Nova’s creditors ? mostly students and teachers demanding tuition refunds and unpaid wages ? to collect their money. For the unsuspecting teachers, this has meant a crash course in Japanese labor law. Several have taken to the streets, leading demonstrations against Nova and Sahashi, while others have held press conferences accompanied by teachers’ union representatives ? Kristen Moon, a freshly arrived American, even appeared dressed as Nova’s corporate mascot, a pink bunny rabbit that has become famous through Nova TV commercials aired across Japan. Some airlines have offered discount flights home for cash-strapped teachers, while embassies have opened hotlines to aid their near-homeless citizens. Former Nova employees last week announced a “lessons for food” program, which would allow students to pay for lessons in meals and food items. Meanwhile, the sheer number of out-of-work teachers have glutted the local labor market for English instruction, causing other language schools to stop accepting applications.

The troubles for Nova don’t end there. A report by court-appointed lawyers investigating the case alleges that founder Sahashi ? since fired by the board and currently in hiding ? had turned his company into something of a personal piggy bank, lining his pockets through such ruses as buying teaching equipment from affiliated companies and selling them to Nova students at grossly inflated prices. He is also suspected of insider trading, misappropriation, and aggravated breach of trust. (Sahashi’s representative has filed a petition refuting such claims.) On Oct. 30, one government lawyer invited reporters to check out the lavish office at Nova’s Osaka headquarters ? complete with a fully stocked wet bar and a hidden bedroom and sauna. “Sahashi is still attempting the sell company shares in hiding. I wanted to show the extent of his misdeeds,” said Osaka attorney Toshiaki Higashibatake, who organized the event. Under Japanese corporate law, Nova can stay intact if it can find sponsors to underwrite its current business. But the company is losing money so rapidly ? its market value has been halved since filing for bankruptcy ? that the search for financial sponsors has been rushed, with proceedings expected to conclude later this week. If it fails to find sponsors for a bailout, Nova faces liquidation.

It’s unlikely that the scandal will put an end to Japan’s $1.2 billion foreign language education industry. Despite a widespread appetite for learning and an educational system that mandates six years of English study, Japan ranks below North Korea on standardized English proficiency tests, according to the U.S.-based Educational Testing Service. All that is small comfort, however, for teachers who share Steele’s plight. Said Moon, the bunny rabbit at the press conference: “I love this country, but I’m in limbo and my life is on hold.”

http://www.time.com/time/world/article/0,8599,1680652,00.html

The tragedy of the English-teaching company Nova is a gripping and revealing one. That students should have their fees returned and teachers and staff be given their salaries should go without saying. That the company had serious management and leadership problems should be equally obvious. Still, the Nova episode is reason to consider several aspects of Japanese society that shaped the rise and fall of one of Japan’s best-known companies.

Before the revelations of so many problems, Nova seemed a clear example of the best side of Japanese economics. The company started with little more than rent for “ekimae” (station-front) office space and a cute pink bunny icon for advertising. That a multibillion yen business could still be built from the ground up seemed to show that Japan’s system was not too rigid to allow innovation. Yet, the sad ending shows that the system is not so lax that improprieties can continue forever.

Apparently, Nova’s rise depended on alleged high-level contacts with various ministry-connected foundations and large investments by risk-taking entrepreneurs. Without that, and a reputedly autocratic management style, Nova could not have expanded so rapidly. The company, however, seemed unable to transform its initial pride and appeal into consistent strength and lasting quality. Ultimately, a combination of a good product, competent management and consumer-friendly attitude is the best business model.

When things go wrong for companies without those qualities, consumers are especially unforgiving. Nova did not endanger the health of children or potentially poison anyone, but their betrayal of trust is inexcusable. The outrage of students, who handed over their hard-earned money, and teachers and staff, who gave precious work hours still uncompensated, seems more than justified. As if acting out some ancient tragic drama, excessive pride blinded the company’s management to internal problems that were obvious to everyone else.

The estimated figures splashed across front pages are startlingly high. The outstanding debt stands at ¥40-plus billion. The language learning industry in Japan is a highly profitable one. People are willing to pay, but usually seek a balance of price and value. Surely the wiser students must have tried to find the best teachers and arranged their schedules accordingly. Yet, even these savvy consumer/learners were cheated in the end. Discount education simply does not work.

The figure of 300,000 students nationwide is almost as staggering. That number means Nova is perhaps the largest language-education provider in Japan. Ironically, most of the students attending Nova had already received the mandatory six years of English language education through high school, and either wanted more or needed more instruction. The education ministry should be reminded that something in language education is sorely lacking. It seems almost as if the public schools have simply been prepping students for Nova!

Beyond the problems of one company, these student numbers reveal how strongly people want to speak another language. Studying a language requires time and money, and clearly, people were ready to invest both. The broad awareness of the linguistic demands of globalization and the desire to get beyond the boundaries of Japan, if only for a couple class hours per week, are remarkable. Students genuinely put their money where their mouths were.

At the same time, this episode has revealed the large number of foreigners willing to come to Japan. As they go about the difficult task of recovering their wages and start to look for other jobs, they will be deciding whether to stay longer or give up and go home. One imagines them all listing their phone numbers outside the scores of now-closed schools to arrange private lessons. At the high point, over 6,000 foreign teachers were recruited to work at Nova. They may have come as a lark, but formed part of Japanese society for the time they were here. In this regard, Nova was a powerful force for internationalization.

Whatever the future holds for Nova after its bankruptcy filing and management restructuring, the need for English lessons will not disappear, nor will the push for internationalizing somehow reverse. Some students may give up, but most will continue to study in other ways. That English language study has become such an important part of Japanese culture is no surprise, but its vast scope, not to mention its profitability, still amazes. Nova may have exploded, or imploded, but the positive reasons for its rise will remain and begin to establish new and better approaches to learning English in Japan much sooner than we might imagine.

http://search.japantimes.co.jp/cgi-bin/ed20071104a1.html

On [deposed Nova Corp. president Nozomu Sahashi’s] desk sat the company’s mascot–the bright pink Nova usagi, a bunny with long ears and the beak of a bird. The ears and the beak are said to symbolize the basics of mastering a foreign language, which are to listen a lot and speak a lot.

The animal is completely guiltless, of course, but I imagine many people must feel angry every time they look at its innocent face.

But Sahashi apparently has no ears to listen to these people’s angry shouts, nor a beak-mouth with which to utter words of apology.

http://www.asahi.com/english/Herald-asahi/TKY200711030050.html

Five companies affiliated with Ginganet Corp., owned by former Nova Corp. President Nozomu Sahashi, obtained 4 billion yen in loans from failed Ishikawa Bank in return for cooperating with the bank’s illicit transactions, The Yomiuri Shimbun has learned.

After the bank went bankrupt in December 2001, Osaka-based Ginganet’s funding situation got worse. A court-appointed administrator of Nova said Ginganet–a communication network service firm–had earned billions of yen by selling IP videophones to Nova at inflated prices. It is believed that Sahashi was trying to raise funds for repayment of loans by Ginganet, which was facing financial difficulties, by overcharging Nova for the IP phones.

Nova filed for court protection under the Corporate Rehabilitation Law on Oct. 26.

In-house documents of the bank, based in Kanazawa, said it extended loans of 25.4 billion yen to several Nova-affiliated companies and the five Ginganet group companies between March 2000 and September 2001. In return, the companies helped the bank increase its capital by 13 billion yen using some of the loaned money.

The Ginganet group companies obtained at least 4 billion yen in loans from Ishikawa Bank on the pretext of purchasing terminals for the IP videophone system, while the group companies took up 521,500 shares in the bank, worth 2.01 billion yen.

The Company Law and other legislation prohibit transactions in which a firm extends a loan in return for capital investment.

During a trial of some former Ishikawa Bank executives who were charged with aggravated breach of trust, prosecutors detailed how some of the bank’s capital increases were based on illegal transactions.

It is believed the then Ishikawa Bank president and others asked Sahashi and Nova advisers to help the bank increase its capital. Sahashi is believed to have accepted the request on condition that the bank extended loans to Ginganet that exceeded its investment in Ishikawa Bank.

According to sources close to Ginganet, Sahashi used to say, “I want my own bank.”

The fact that Ishikawa Bank filed for insolvency with the Financial Services Agency in December 2001 despite efforts to rehabilitate itself left the Ginganet group pressed to repay a huge amount of loans.

According to Nova’s administrators and other sources, Ginganet began to sell a new model of IP videophone from July 2002, immediately after the bank’s failure. It sold them to Nova at a price several times greater than cost, earning billions of yen over five years.

Ginganet was able to repay the loans rapidly even though selling the IP phones was its only source of income. Ginganet’s debt to Ishikawa Bank was taken over by a regional bank. By April it was down to 250 million yen, indicating that most of Ginganet’s profits were being allocated to loan repayment.

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Nova instructors forced to vacate

OSAKA–Many foreign instructors working for troubled English language school operator Nova Corp. have been asked to vacate their apartments, rented by Nova, due to arrears of rent.

Preservation administrators of Nova, which has filed for bankruptcy protection, have asked the landlords to wait until a corporate sponsor is found for the firm. However, some instructors have already been evicted, unable to make ends meet without salaries.

Many instructors are waiting in hope for the firm to enter the rehabilitation process, but others have decided to return to their home countries.

“You have to leave the apartment, or we’ll stop the electricity and gas, and change the lock,” a real estate firm employee told Canadian Nova instructor Stephen Clarkson on Oct. 27, the day after Nova filed for court protection under the Corporate Rehabilitation Law, at his apartment in Abeno Ward, Osaka.

Clarkson’s landlord presented him with a document stating that he would agree to vacate the apartment by Sunday. Clarkson, 24, had no choice but to sign it.

His roommate, a 23-year-old Canadian man, had just moved in, but now also has to vacate.

Most Nova instructors live in apartments rented by Nova. Nova deducted 60,000 yen from each instructor’s monthly salary in advance, stating that it constituted the self-pay amount of the rent.

Clarkson and his roommate had together paid Nova 120,000 yen per month for their apartment, but the landlord told them the actual rent was 70,000 yen a month. They also learned that Nova had failed to pay the rent the past two months.

After Nova filed for court protection, one of the firm’s preservation administrators said at a press conference: “Instructors are not to blame. We’ll take responsibility, so I hope [the landlords] will wait [for rent payments].”

http://www.yomiuri.co.jp/dy/national/20071103TDY02307.htm

¥100 BILLION IN LIABILITIES

The Osaka Central Labor Standards Supervision Office said Friday it questioned ex-Nova Corp. President Nozomu Sahashi this week on suspicion of breaking the law by failing to pay its employees.

It was meanwhile revealed that Nova would have liabilities in excess of assets totaling nearly ¥100 billion if the foreign-language school chain is liquidated, because the actual value of its assets is only about a 10th of book value, sources said.

According to the bankruptcy petition Nova filed Oct. 26 with the Osaka District Court to request protection from creditors and rehabilitation, liabilities exceeded assets by about ¥1.6 billion at the end of July, with assets totaling ¥42.3 billion and liabilities ¥43.9 billion.

But Nova’s actual negative net worth will hit at least ¥94 billion if the company is liquidated because its assets ? mainly textbooks, school equipment and other items ? would be worth only ¥4.2 billion after depreciation, the sources said, meaning its liabilities total somewhere in excess of ¥98 billion.

The liabilities would comprise some ¥70 billion worth of tuition to be reimbursed to students and loans from banks, the sources said.

That number may swell even further because it delayed paying rent for its schools and neglected to pay wages to instructors and other employees since August.

When the labor office quizzed Sahashi, 56, on Monday, he claimed Nova was unable to raise the funds needed to cover its payroll obligations because it was turned down for a loan request, sources at the office said.

Earlier reports, however, said Sahashi and his family had unloaded their majority stake in Nova and a controlling stake in Osaka videophone equipment supplier Ginganet Co., which allegedly gouged the chain’s students for their equipment. Nova shares went through wild price and volume fluctuations from late August to mid-September before it filed for protection in October.

The labor office had already confirmed in interviews that the wages of both Japanese and foreign employees were not paid since at least September. What it wants to know now is whether the company didn’t pay despite being able to. This will be key in deciding whether to pursue criminal charges against Sahashi and other Nova executives, they said.

The labor office had urged Sahashi to come in for questioning repeatedly before he disappeared from public view just before Nova’s Oct. 26 bankruptcy filing. The night before, Nova’s board of directors axed Sahashi in absentia. He couldn’t be contacted.

Nova began struggling with its finances after the Economy, Trade and Industry Ministry ordered it to partially suspend business in June for six months for lying to consumers about its services when soliciting students.

According to a labor union at Nova, salaries for regular employees were delayed for each of the three months since July, and the teachers have not been paid since September.

Nova failed to pay salaries for October and subsequently sought court protection.

If the unpaid wages cover two months, Nova will owe its workers a total of nearly ¥4 billion, according to a Nova administrator.

Nova quickly expanded with relatively low class fees and aggressive media publicity, and once boasted 480,000 students at its peak in 2005. It also had previous bouts of troubles, including lawsuits filed by students seeking reimbursements of fees that the company lost and subsequently had to pay.

http://search.japantimes.co.jp/cgi-bin/nn20071103a2.html

Former Nova Corp. President Nozomu Sahashi admitted the language school chain withheld wages from thousands of employees, saying the now-defunct company could not raise sufficient funds, Osaka Labor Bureau sources said Friday.

The bureau interviewed Sahashi on suspicion of violating the Labor Standards Law and may seek criminal charges after questioning Nova’s current management team.

http://www.asahi.com/english/Herald-asahi/TKY200711020304.html

Failed NOVA Corp.’s thousands of unpaid teachers, hundreds of thousands of paying students left without classes and billions of yen in debt have been well-documented, but Shukan Asahi (11/9) notes an important question about the English conversation chain remains unanswered: What’s going to happen to the NOVA bunny?

NOVA grew to become Japan’s biggest English conversation chain, but its rapid growth became too hot to for it to handle, and the company is now in the hands of receivers after filing for protection from creditors.

Receivers have said they’ll give NOVA a month to find a savior and if it doesn’t happen, the company will go bankrupt.

While in its heyday, the NOVA bunny was one of the country’s most recognizable symbols, but what’s going to happen to it now?

“If NOVA can find a company to prop it up so that it can continue offering classes and doing business, the company’s trademark rights and intellectual property rights like the bunny will stay as they are,” a expert on commercial law tells Shukan Asahi. “But if NOVA goes bust and the company is broken up, all its assets have to be monetized and the proceeds forwarded to creditors. Rights to the bunny could well be sold off. That is, of course, if there’s anybody out there who wants to buy them.”

The NOVA bunny first appeared in a TV commercial the conversation class chain started airing in the autumn of 2002. It made an enormous impact among the cute-loving Japanese and was soon among the most highly rated commercials in the country.

Merchandising followed, first with the release of a CD that reached No. 12 on the Oricon chart — Japan’s equivalent of Billboard — then came soft toys, mobile phone straps, T-shirts; the whole kit and caboodle.

Within months, the NOVA bunny was one of Japan’s hottest properties. Like the company that spawned it, though, fate hasn’t been too kind to the NOVA bunny.

“When the bunny merchandise first came out, it was only sold to students of the chain, so it was regarded of something of a rare commodity and also served to boost student numbers. I wanted to buy a bunny doll myself, so checked out the prices on an online auction site and saw that they were selling for several thousand yen apiece,” Dokkyo University professor and economic analyst Takuro Morinaga tells Shukan Asahi. “The bunny was as cute as hell, but soon it was being sold everywhere and eventually turned up in game centers all across the country, losing that ‘rarity value’ that had made it so popular in the first place. I think, like NOVA itself, it wasn’t good for the bunny’s fortunes that it became too popular too quickly. It’s really unfortunate, but I think in terms of the value of intellectual property and commercial rights, it’s a bit much to expect anything from the NOVA bunny now.”

http://mdn.mainichi.jp/culture/waiwai/news/20071102p2g00m0dm012000c.html

A union representing teachers of Nova Corp. said Thursday its ranks will soon launch a “Lesson-for-Food” campaign in which they will offer free classes to students of the failed foreign-language school chain in exchange for basic food or meals.

The union said in Tokyo that it has also started accepting donations to help Nova teachers who find themselves destitute and face being evicted from their homes, said Bob Tench, president of the Nova branch of the National Union of General Workers Tokyo Nambu.

“Why are we doing this? People have no money . . . they have no food,” Tench told reporters at the Foreign Correspondents’ Club of Japan. “This is a crisis that is rapidly turning into a tragedy.”

According to the union and government sources, large numbers of Nova teachers, mainly foreign, have not been paid for months as the school’s finances tanked.

Louis Carlet, deputy general secretary of the union, said it is hard to gauge exactly how many people are in dire straits because all schools were closed Oct. 26, when Nova filed for court protection under the Corporate Rehabilitation Law.

Two court-appointed administrators for Nova are now searching for a sponsor to help rebuild the firm.

But finding a sponsor will not help solve the immediate problems of Nova teachers because it will take time for the company to reopen for business and start settling unpaid salaries, Tench said.

http://search.japantimes.co.jp/cgi-bin/nb20071102a1.html