News

NOVA Corp. founder Nozomu Sahashi denies having illegally profited from the sale of overpriced videophone equipment to the firm, according to his lawyer.

Receivers for NOVA are considering filing a criminal complaint with law enforcers accusing Sahashi, 56, the sacked president of the company, of aggravated breach of trust for unfairly profiting from the sale and causing losses to the firm.

Sahashi dismissed allegations that a company wholly owned by Sahashi’s family sold videophones for the company’s “Ochanoma Ryugaku” home lessons for several times the original price they were bought for from their manufacturer.

“The company bought the machines for more than 50,000 yen from their manufacturer and sold them to NOVA for less than 70,000 yen,” the lawyer quoted Sahashi as saying. “The profits from the deal went to cover the costs of developing the machine.”

http://mdn.mainichi.jp/national/news/20071102p2a00m0na024000c.html

Lawyer and bankruptcy administrator Toshiaki Higa-shibata said the [Nova Group] company, Ginganet Co., unfairly obtained billions of yen in profits through the intra-group ruse.

Higashibata is now considering filing a criminal complaint against [ousted Nova Corp. President] Sahashi on suspicion of a special breach of trust.

http://www.asahi.com/english/Herald-asahi/TKY200711010091.html

A luxury president’s suite in a commercial building in Osaka used by Nozomu Sahashi, former president of Nova Corp., which has filed for court protection against bankruptcy, was shown to the press on Tuesday night.

Lawyer Toshiaki Higashibata, a preservation administrator of the firm, said, “This suite is a symbol of how the former president used the firm for his own purposes.”

The suite, located on the top floor of the 20-floor building in Naniwa Ward, Osaka, was renovated at a cost of 60 million yen to 70 million yen. The monthly rent of 2.7 million yen was covered by Nova.

Besides a desk and other office effects, the 330-square-meter space contains a bar stocked with premium wine and spirits and an eight-tatami mat tearoom. Opposite the tearoom is a wall that opens to access a secret chamber with a bed, sauna and bathroom with a jacuzzi. There is a similar president’s suite in the firm’s Tokyo headquarters, sources said.

An employee of the firm who entered the president’s suite for the first time said: “Employees were restricted [from entering the suite]. Only top executives could go in.” He said he did not expect the president’s suite would be so lavish, although he had heard a rumor about the secret room.

According to Higashibata, Sahashi’s income was about 300 million yen in fiscal 2005, when Nova recorded a deficit of 3.1 billion yen. In fiscal 2006, Sahashi’s income was 159 million yen, whereas Nova was 2.9 billion yen in the red.

Sahashi had been out of contact, but on Tuesday, his lawyer contacted the administrators. “[The lawyer] expressed an intention to object to [Nova’s] resolution to dismiss [Sahashi as president] and the court order to protect the firm’s assets. But an owner-proprietor should be the first to give up assets when the company is in trouble,” Higashibata said. “I, along with Nova employees, resent him.”

A 26-year-old former Nova instructor from Canada handed in her resignation on Oct. 19 without receiving her salary. She said she wished the president had carried out his responsibilities in a way that measured up to the splendor of his suite, and that by canceling the rent contract for the suite, he could have paid the salaries of 15 foreign instructors.

A 63-year-old woman of Sakai who had been going to Nova’s Sakai branch for seven years, paid 380,000 yen in advance for future lessons.

“I thought [Sahashi] might have lived in the lap of luxury, but this is much more than I’d imagined,” she said. “That might have been OK if the company was profitable, but he shouldn’t have done that when his firm was in financial trouble. He should come out in front of the students and apologize.”

http://www.yomiuri.co.jp/dy/national/20071101TDY02304.htm

Hundreds of Canadians who lost their jobs following the collapse of Japan’s largest chain of language schools are now faced with another frustration: Today they will lose all of the health coverage provided to them by their former employer.

Nova, a well-known company that taught languages to an estimated 400,000 students, filed for bankruptcy protection last Friday. Reports from Japanese media suggest that the company had fallen into heavy debt, estimated at $370 million.

The company employed more than 6,000 workers at its peak — two-thirds of whom were believed to come from foreign countries, including 668 from Canada.

Since filing for bankruptcy, Nova has been taken over by government-appointed trust-ees. For a 10-day period, which began Oct. 27, the trustees will look for potential buyers to take over the company and its associated debts.

As of yesterday, the government reported “negotiating with a number of companies,” but did not specify the names of those companies.

On a letter posted to its corporate website on Tuesday, the trustees informed teachers that Nova could no longer afford to pay their health insurance costs.

“We regret to inform you that all … policies will terminate as of October 31, 2007,” the statement read.

“We ask that those who require immediate coverage for illness and injury … to find and join another insurance scheme.”

For those working for Nova, it was the latest in a series of signs that things have taken a turn for the worse.

Pay delays in the months prior to the bankruptcy meant Nova employees received letters from Japanese landlords asking why their automatic rent deposits had not been made by their employer.

Nova, in turn, sent out faxes with various explanations for the delays.

Phuong Du, a 25-year-old Toronto native, moved to Japan last April to work for Nova.

While the experience was generally good, she said yesterday the last two placements have been stressful. The school has been closed for three weeks and she hasn’t been paid in more than a month.

“It’s kind of crazy, kind of hectic,” Ms. Du said.

But it could be worse. She has heard of cases in which teachers have been evicted from their apartments and knows a teacher who has not been paid since he started his job in September.

In her case, she saved enough money to wait out the situation and has private health insurance that is not affected by the Nova bankruptcy. But she knows how hard it has been for other teachers.

“A lot of instructors are living kind of day by day,” she said.

“A lot of instructors, too, have families as well, so they have to take care of more than just themselves.”

And those who have lost their jobs have one more possibility they must consider: The costs associated with packing up their lives and moving home.

“I can’t afford to stay,” Christine Ley, a Nova teacher originally from Collingwood, Ont., said yesterday.

Ms. Ley, 23, who has taught in Japan for 11/2 years, said she feels “forced” into a position that will leave her in debt.

“It’s a pretty upsetting feeling, knowing that you’re being forced to leave and not by your own decision,” she said.

“I intended to stay into the new year, but now I’ve had to change my plans and go home without the savings, which I needed to go back to university.”

Nova fell into financial problems in recent years despite having a sizable market share and established clientele. According to its corporate website, Nova offered its students language lessons 24 hours a day and held up to 60 per cent of the private language education market in Japan.

Reports out of Japan this week have suggested former Nova president Nozomu Sahashi had managed the company poorly — and had recently turned down at least one offer from another company to form a partnership and infuse cash into the struggling Nova.

Forbes.com reported yesterday that Mr. Sahashi turned down a $55-million cash injection offer from Japanese retailer Marui in a proposed business deal last May. As part of the deal, however, Mr. Sahashi would have had to step down from his post as company president.

Those who have worked for Nova in the recent past say the bankruptcy was not an unforseen development.

David Carson, a former Nova teacher and Ottawa native, said in an interview earlier this week that the company had used “assembly-line style” teaching in its schools for years — something he thought could one day land the company in trouble.

“There was always a little bit of talk,” Mr. Carson said, referring to his experience with the company between the fall of 2003 and January 2005.

“It was kind of on the backburner then that (Nova) might not be as successful as they appeared on the surface.”

http://www.canada.com/ottawacitizen/news/story.html?id=c960580b-c969-4d1b-bf0f-82e94a1444a0

English conversation school chain operator Nova Corp. has filed for court protection from creditors after running into financial trouble under its president, Nozomu Sahashi, who has since been sacked by other board members.

This is the final installment of a three-part series of articles taking an in-depth look at Nova’s collapse.

The dramatic collapse of Nova Corp., the nation’s largest English-language school chain, has provoked mixed feelings among government officials, in part because it followed a decision by the Economy, Trade and Industry Ministry in June to punish the firm only several months ago.

“I’d heard Nova’s financial situation wasn’t good, but I never expected it would fail just 4-1/2 months after the administrative punishment [imposed by the ministry],” a senior ministry official said.

On Oct. 26, the day Nova filed for court protection, Economy, Trade and Industry Minister Akira Amari said: “Nova had a registration system that other English schools decided against introducing. But it had a fatal flaw.”

The system in question involved requiring students to purchase lesson points when they signed contracts of up to three years, which allowed them to take classes based on the number of points they bought. The more points a student bought in one go, the lower the cost per unit.

But revisions to the Specified Commercial Transactions Law in 1999 introduced changes that would later contribute to Nova’s undoing.

Prior to the changes, language schools were not covered by the law, meaning that some schools were not obliged to accept cancellations after lessons had started, except for in special circumstances such as illness or a job transfer, while some other schools had introduced expensive breakup fees for students cancelling contracts.

Revision of the law allowed customers of aesthetic clinics and language schools to cancel contracts after lessons had started for any reason. Some senior executives at other language companies thought the changes would hurt Nova most, because it had been using lesson fees paid in advance to open more branches.

But Nova’s then President Nozomu Sahashi, 56, reportedly said at a meeting of a deliberative council of the then International Trade and Industry Ministry that was held before the revision, “Our management is as solid as a rock, no matter how the system changes.” The senior executives of other schools looked at each other in complete confusion.

One of associations in the industry that language schools belong to had by then already voluntarily refrained from taking tuition fees in advance for contracts longer than a year. However, Nova continued the long-term contracts even after the revision.

Sahashi was determined to continue the system because of the company’s method of adjusting accounts at the time of a midterm cancellation. For example, even if a student paid tuition in advance on the understanding classes would cost 2,300 yen, Nova would calculate tuition as 5,000 yen per class for those lessons already taken if a contract was cancelled midterm, thus minimizing refunds.

Following the 1999 change, the ministry issued an instruction that worked out in Nova’s favor as it allowed high unit costs to be applied at the time of cancelation in cases when there was “a rational reason.”

Some students complained the refunds were too small, but Nova dismissed such claims by stating that the ministry had accepted its method.

However, things turned sour for Nova when the Supreme Court ruled Nova’s settlement method was illegal on April 3.

Sahashi argued in a statement submitted to the court: “If students started buying large numbers of points for the lower prices and could just cancel them whenever they wanted, our company would go bankrupt.” But the court ignored his pleas.

After the Economy, Trade and Ministry imposed a six-month ban on Nova soliciting for long-term contracts in June, there was a big jump in the number of students asking for their contracts to be cancelled.

“The court ruling and the ministry order led students who had given up on canceling, and who weren’t attending lessons, to take action,” one Nova employee said. “It was like waking up a sleeping dog.”

From April to June, the company had to refund 1.6 billion yen–more than the company had set aside for refunds for the entire year. Nova executives quickly realized they had little cash on hand.

Now, about 300,000 students, who paid a total of about 40 billion yen in advance have been left out of pocket. When a company goes into liquidation, outstanding taxes and worker’s salaries are prioritized over refunds, so it is likely that students will get nothing back.

Sahashi had hoped to establish 1,700 branches around Japan–about twice what it achieved at its peak. But the capital for enlargement came from advanced payments from students.

Nova was structured on the faulty premise that there would be an endlessly increasing supply of students. This assumption was based on shakier foundations than the ministry realized.

http://www.yomiuri.co.jp/dy/national/20071101TDY01301.htm

Collapsed English-teaching company NOVA Corp., which has filed for financial protection, is in talks with several firms standing as candidates to bail out the company, it has been learned.

All of the firms are operating businesses, and none of them are investment funds, officials said. NOVA hopes to decide on a firm to provide financial support no later than next week.

Toshiaki Higashibatake, a lawyer serving as a protective administrator for NOVA, said that NOVA officials talked with one company in Tokyo on Monday, and two companies in Osaka on Tuesday. There were reportedly other companies that were interested in stepping in to aid NOVA.

All of the firms in talks with NOVA planned to shut unprofitable schools, and pick up the business by reducing the current number of schools by about half. Some firms were reportedly prepared to guarantee a certain percentage of lesson fees that students had paid in advance.

NOVA reportedly plans to give preference to a firm that will maintain the company’s nationwide network. It reportedly had offers from a firm wanting a split transfer, and received proposals from an investment fund, but turned the offers down.

http://mdn.mainichi.jp/national/news/20071101p2a00m0na014000c.html

Nova may file criminal charges against former President Nozomu Sahashi over questionable transactions between the failed foreign-language school chain and a firm he effectively ran, court-appointed administrator Toshiaki Higashibata said Tuesday.

He also said Sahashi, who was ousted by Nova’s board of directors last week, had contacted him and implied he would challenge the board’s decision.

According to Higashibata, Nova Corp. bought videophone equipment from Ginganet Co., an Osaka-based firm effectively controlled by Sahashi, and sold the devices to students at prices several times above cost.

Nova paid Ginganet ¥8.2 billion for the equipment over a five-year period dating from 2002, he said.

“We understand there was a scheme to funnel money” from the students to Osaka-based Ginganet by way of Nova, Higashibata said, noting Sahashi could face aggravated breach of trust charges.

He also revealed that Sahashi, one of Nova’s cofounders, sold all his shares in two firms effectively under his control ? including Ginganet ? to one person around the time Nova filed for protection from creditors on Oct. 26.

Earlier Tuesday, Nova said the equity stakes held by Sahashi and his family fell sharply in the April-September half for unknown reasons.

As of Sept. 30, Sahashi and an Osaka-based firm fully owned by him and his family held a combined 20.2 percent of Nova’s total voting rights, compared with 72.6 percent as of March 31.

Nova said it did not know what instigated the sudden change. Sahashi’s failure to notify financial authorities, however, may have violated the financial product transactions law.

Sahashi was fired by Nova’s board of directors in absentia on Oct. 25, and his whereabouts remains unknown.

But Higashibata said Sahashi contacted him via a lawyer Tuesday afternoon and suggested that he would legally challenge the board’s decision to remove him as president.

Other tidbits revealed at the news conference include the revelation that Sahashi received about ¥310 million in executive salary for the business year to March 2006, the year Nova recorded a loss of about ¥3.1 billion ? its first ever.

On Tuesday, Higashibata also let the media peek inside Sahashi’s opulent suite on the 20th floor of Nova’s administrative headquarters in Osaka.

“We are showing this as an example of his (Sahashi) calling the company his own,” he said.

The 330-sq.-meter executive suite has a red-carpeted reception room, a luxurious private dining and living area with large-screen TV, a bathroom with a sauna, a tea room and a room with a double bed.

Nova was paying ¥2.7 million a month to rent the suite, which cost ¥60 million to ¥70 million to furnish and decorate, Higashibata said.

Nova filed for bankruptcy under the Corporate Rehabilitation Law with a debt estimated at about ¥43.9 billion as of the end of July, and two administrators appointed by the Osaka District Court are searching for sponsors to help turn it around.

Higashibata said Nova is negotiating with interested companies but did not identify them.

Nova spoke in Tokyo with one firm Monday and with two companies in Osaka on Tuesday, he said, adding that others have offered support or showed willingness to take over some of its operations.

http://search.japantimes.co.jp/cgi-bin/nn20071101a3.html

While 300,000 students are worrying about their prepaid tuition and 4,900 foreign teachers are waiting for unpaid wages, lawyers appointed to act as receivers for the bankrupt Nova Corp. recently discovered that Nozomu Sahashi, the former president, had secretly sold a 50%-plus stake in the ailing English-language school chain.

Japan’s biggest foreign language school, Nova Corp. said Tuesday the combined shareholdings of former President Sahashi and his Osaka-based family company fell sharply to 20.2% at the end of September from 70.6% as of the end of March, for unknown reasons. Nova said in a press release that, although the change in the stock holding was sudden and big, no details about it are available at the moment, according to Jiji Press.

If Sahashi is proved to have sold his shares without filing a report with the securities regulatory authority, the receivers will file a criminal complaint with law enforcement. In Japan, a major shareholder with a 5% stake or more in a listed company is required to disclose any share transaction within five business days.

More than 90% of the value of Nova shares has evaporated over the past year, and the stock will be delisted from Jasdaq on November 27.

Sahashi was removed from his post last Thursday after he failed to show up at a board meeting held at Nova’s Tokyo office. The other board members, after rejecting Sahashi’s last-minute request to change the meeting venue, sacked the president and immediately filed for court protection from creditors under Japan?s Corporate Rehabilitation Law.

The 56-year-old Sahashi has yet to appear to give his interpretation of the situation. His egoistic character and autocratic administration have been widely criticized as bringing about the collapse of Nova, leaving total liabilities of 43.9 billion yen and disrupting the lives of the school’s students and teachers.

Sahashi launched a tiny English-language school after returning from a sojourn in Paris in 1981. Thanks to the neglect of English-language education in traditional schools, Nova’s bright blue neon boxes quickly spread across the country, and the company became Japan’s biggest network of centers for learning English.

Yet, when the number of Nova schools reached 900, emergency signals began to light up. Consumer affairs offices across the country were busy with complaints filed by Nova’s students who received no instruction despite having prepaid for their lessons. Landlords? lawsuits against Nova over unpaid rent began to pile up. The authority instituted a six-month ban in June, prohibiting Nova from signing new contracts with customers of more than one year or more than 70 hours of instruction, as a penalty for giving false claims about its lessons to prospective students, which finally pushed the ailing education concern to the brink of bankruptcy.

Nova seemed to have found a white knight in May, when its board was in talks with leading retailer Marui for a business tie-up. Nevertheless, Sahashi walked away from the discussion table during the final stage of negotiations, as he was reportedly dissatisfied with the arrangement that he would have to give up his position as president. In turning down Marui’s 6.6 billion yen ($57.71 million) capital injection, he left his foreign teaching corps in despair.

The foreign instructors have yet to receive any paychecks since September. Some of these, who are mostly young graduates seeking to experience life in Japan, have even been evicted from apartments provided by Nova. The Osaka Labor Bureau announced on Monday it would ask Nova’s receivers to confirm the home addresses of those teachers who return to their home countries without receiving wages.

Since Friday, 76 foreign instructors from Nova have visited the Osaka Employment Service Center for consultations. The center also has received 127 telephone inquiries, mostly concerning the unpaid wages, according to Mainichi Daily News.

The Australian and British embassies in Japan have set up special units to assist their nationals. Australia’s national carrier, Qantas, is also prepared to offer discounts to Nova teachers looking to head back home.

http://www.forbes.com/markets/2007/10/30/nova-language-centers-markets-equity-cx_vk_1030markets03.html