The Economy, Trade and Industry Ministry on June 13 prohibited Nova Corp., which operates English conversation schools nationwide, from offering new contracts to students lasting longer than a year for the next six months.
The ministry also will terminate, in the case of Nova, a subsidy to individuals that helps people acquire job skills, which Nova students could obtain to cover part of their tuition fees. From June 20, Nova students will no longer be eligible for the state subsidy.
Both measures effectively block the two companies’ main source of revenue and are very strict–no different from demanding that the two firms withdraw from business.
News
Nova Corp. eyes capital tie-up
[According to industry sources] the nation’s largest English language school chain is leaning toward a capital alliance as a way to improve its creditworthiness and secure operating expenses.
[Nova] posted a net loss of 3 billion yen in fiscal 2005 and another net loss of 2.4 billion yen in fiscal 2006 as its expansion policy backfired. The number of students fell to 418,000 as of the end of March, down 12.1 percent from a year earlier.
http://www.asahi.com/english/Herald-asahi/TKY200706180093.html
Nova president eyes issuing new shares
LOOKING TO DISPEL MARKET CONCERNS
Nova Corp. is considering issuing new shares to strengthen its capital and dispel market concerns that its business could worsen in the wake of the government’s order to suspend part of its operations, President Nozomu Sahashi said.
Although the details have yet to be worked out, the embattled English-language school operator thinks tapping external capital is a “measure toward a next step,” Sahashi said Friday in his first interview after the business suspension order was imposed by the Ministry of Economy, Trade and Industry.
He dismissed the possibility of capital or operational tieups with rival language schools, saying, “We cannot expect a synergy.”
However, he did refer to the possibility of concluding alliances with companies in other industries.
On prospects for the current business year through next March, Sahashi said Nova will have a tough time in the first half but will see some improvement in the second half. “It is possible that we could return to profitability,” he said.
The company booked a net loss of 2.50 billion yen for the year through March 31.
Following the order byMETI, Nova suspended part of its business Thursday for six months.
The ministry said many Nova students were unable to take lessons at a school or time of their choosing in contradiction to Nova telling potential customers they could book language lessons “anytime and anywhere.”
Nova’s management “must take responsibility,” Sahashi said, indicating the company will impose disciplinary measures on executives, including himself, in the future.
He also said Nova will set up an internal inquiry panel.
Nova is Japan’s biggest English-language school. Headquartered in Osaka, it has about 480,000 students.
It violated a law designed to protect consumers in fields such as education, beauty services and arranged marriages, METI said.
Subsidies to end
The welfare ministry said Nova Corp.’s English-language courses will no longer qualify for government subsidies designed to support educational opportunities because the company lied to consumers.
The Health, Labor and Welfare Ministry said the subsidies will no longer be given starting Wednesday. This will be a major blow to the English-language school operator.
The government provides subsidies for people engaged in educational training authorized by the welfare ministry to improve the abilities of the unemployed and other people.
The welfare ministry approved 32 Nova courses for the subsidies in 1999. In fiscal 2006, about 4,700 people received a total of 560 million yen in subsidies.
Since 1999, around 71,000 Nova students have received a total of about 16.1 billion yen.
Exploiting the zeal of Japanese to learn English
Over the last few years, Nova opened new classrooms at a phenomenal pace, but reduced the number of instructors at the same time. Students who wanted to cancel their contracts ran into serious trouble. It was as if Nova was ruthlessly exploiting people’s eagerness to improve their English.
http://www.asahi.com/english/Herald-asahi/TKY200706160079.html
Nova boss weighs assistance options
Several companies in various industries, including retail firms, have offered capital and business alliances to Nova Corp., the nation’s largest English language school chain, Nova President Nozomu Sahashi said in an interview with The Yomiuri Shimbun Friday.Sahashi said Nova, which was ordered by the Economy, Trade and Industry Ministry to suspend part of its operations following the discovery of violations of the Specified Commercial Transaction Law, was considering all offers. “We are considering the offers because trust in us has to be restored,” he said.
Nova has reportedly seen its sales drop sharply following the ministry’s order, which limits the number of new contracts the company can receive. One option the company is considering to meet financial demands is selling off properties and real estate in Osaka estimated to be worth several billion yen.
Concern is growing among Nova students because the company was ordered Wednesday to suspend recruitment of customers for long-term contracts. It was also decided Friday that the company would be excluded from governmental benefits for education programs, as of Wednesday.
“I’m uncertain as whether we’ll be able [to regain the public’s trust] through our efforts alone,” Sahashi said. “If we get a good business partner, we may be able [to regain trust] earlier.”
Though Sahashi admitted that several firms in various industries had offered to form partnerships with Nova, he rejected the possibility of a business affiliation with another English school. “Other English conversation schools wouldn’t help us to regain the public trust, and we couldn’t expect any benefits from such a partnership, either,” Sahashi said. “I don’t want to tie up with a fellow trader.”
The president was upbeat regarding Nova’s finances, which are expected to drop due to a lack of new student contracts and the likely cancellation of current ones. “There’s no problem, and we don’t need the support of finance organizations, either,” Sahashi said.
Since Nova was inspected by the ministry and the Tokyo metropolitan government in February over its violation of the law, several firms have approached the company with offers of business alliances.
According to one source, a large retailer had discussed a possible business affiliation with Nova through a fund, but gave up on the plan because the two companies could not agree on the conditions. Another retailer, however, reportedly is still interested in a business alliance.
While Nova grew rapidly because of its “ekimae ryugaku” model of operating schools near stations, the firm was in the red in its consolidated account for fiscal 2005 and 2006, affected by a reduction of central government benefits for educational programs.
Nova suspension order
This is the first time that an English conversation school has been so harshly disciplined. However, it is a natural reflection of the shoddy way in which Nova has run its business–namely, engaging in a systematic deceit with the signing and canceling of course contracts. A detailed check of the management reveals 18 different rule violations. They include exaggerated ad copy, explanations contrary to the facts, refusing or delaying refund payments from canceled contracts and failure to disclose key matters, among other things.
The illegal practices stem from structural flaws inherent in the company’s overaggressive business expansion plan.
http://www.asahi.com/english/Herald-asahi/TKY200706160085.html
Students, ex-staff critical of Nova
Students and former employees of the Nova Corp. language school chain were critical of the company’s practices in light of its suspension Wednesday for six months from recruiting students on long-term contracts.
Sadaaki Suwazono, director of the Economy, Trade and Industry Ministry’s Consumer Protection Division, detailed a list of 18 offenses, including exaggerated advertising claims and misrepresentation.
“These offenses were committed with the full knowledge of senior management,” Suwazono said.
The ministry and the Tokyo metropolitan government launched an investigation into Nova in February.
They found a memo in which Nova President Nozomu Sahashi stated there is no need to stop pushing sales at a meeting held to discuss measures to deal with a lack of teachers making it difficult to meet student reservations.
Company officials have reportedly told students that the ministry permitted Nova to run the business that way.
When the company was faced with requests from students to cancel contracts within a cooling-off period after signing a contract, an executive in the company’s complaint department reportedly instructed other employees to tell the students the system could not be applied.
“People will lose faith in the Specified Commercial Transactions Law if we let [Nova] get away with these offenses,” Suwazono said.
Questions have also been raised by former employees of the company about Nova’s profit-first approach to business.
A 24-year-old woman from Wakayama who worked until December as a Kansai area representative at Nova’s Osaka headquarters said about the company: “The catchphrase stating that if a student booked they could take a class at any time also implied that this included videophone lessons.”
She said, however, that the contract manual states videophone classes must not be mentioned unless the customer brings the matter up, and that there was a rule that staff could not volunteer information to students unless asked.
Furthermore, when potential students took a 20-minute test to ascertain their level of language skills, they were made to sign a contract which stipulated that day as the first day of their contract.
“I feel terrible as I’m aware I did some bad things,” the former employee said.
Lessons went ahead as normal at a school near Shinjuku Station in Tokyo on Wednesday evening, but all the students there expressed surprise at the suspension enforced by the ministry.
A Nova pamphlet states that students can freely choose what type of lesson they want, when and where to take it and how many people will be in the class.
“Because I couldn’t reserve lessons, I couldn’t use up the points I’d paid for. Staff told me that if I bought additional points, I could extend the time period for my lessons, but it was just an aggressive sales tactic,” an unemployed 29-year-old male student said.
A thirtysomething female company employee from Osaka said that she could not reserve lessons at a school in Kyushu and could only attend 10 lessons in three months.
Nova staff recommended she take more expensive one-on-one lessons when she complained she could not use up her points in the specified time period.
“The company thinks of profits more than students,” she said.
Nova has more than 400,000 students at over 900 schools nationwide. It is claimed that the company pushes long-term contracts offering cheaper lessons that trap students who cancel midway through their contracts.
The chain is well-known for its “Nova rabbit” mascot and its “ekimae ryugaku” policy of opening schools near stations.
Nova dealt penalty for deception
Students routinely misled, METI says
Nova Corp., the nation’s largest English-language school chain, was ordered by the government Wednesday to partially suspend business for six months for lying to customers about its services.
Nova will be banned from selling long-term contracts for language lessons starting Thursday, officials of the Ministry of Economy, Trade and Industry said.
Contracts with existing students, however, will be allowed to be renewed.
“We have concluded that (Nova’s way of signing up students) was extremely malicious,” said a METI official who briefed reporters about the order.
Nova “engaged in illegal acts, with the top management at its head office authorizing the irregularities. The company even compiled a manual advising staff on how to respond to claims by students.”
The language school chain, with about 480,000 students and 900 schools, tells prospective students they can book language lessons “any time” they want and at any Nova school nationwide.
However, clients have complained that they were not able to book lessons during busy periods.
METI has been investigating business irregularities at Nova since it inspected the company’s headquarters in Osaka in February.
The investigation has uncovered that several Nova schools did not give full refunds to people who canceled lessons, the officials said.
In addition, some people have reported that Nova misled them into believing their cooling-off periods had expired and they could not cancel their contracts.
Under the law, private language school clients have an eight-day cooling-off period from the time they sign a contract, during which they can cancel and get a full refund. However, Nova staff reportedly told some people the cooling-off period begins on the day they register their name and address at the school, not when they sign a contract.
Nova shares fell 10 percent to end Tuesday’s trading at a 52-week low of 88 yen.
Rule-breaking Nova hit with suspension order
“We have concluded that (Nova’s way of signing up students) was extremely malicious,” said a METI [Ministry of Economy, Trade and Industry] official who briefed reporters about the order.
Nova “engaged in illegal acts, with the top management at its head office authorizing the irregularities. The company even compiled a manual advising staff on how to respond to claims by students.”
http://www.asahi.com/english/Herald-asahi/TKY200706130423.html