Don’t leave Nova students in the lurch

Nova Corp.’s students have been left in the lurch–and out of pocket–after the company announced it would temporarily close its schools. Steps must be taken to ensure these students can continue taking English-conversation lessons.

Nova, the nation’s largest English-language school chain, dismissed cofounder Nozomu Sahashi on Friday and filed for protection from creditors with the Osaka District Court under the Corporate Rehabilitation Law. Nova’s total debts are estimated at 43.9 billion yen.

Nova, which was founded in 1981, was a late arrival in the industry, but has relentlessly expanded its business with the aim of opening 1,000 schools nationwide. Nova had 300,000 students at its about 670 schools, which were staffed by 4,900 non-Japanese instructors and other employees.

Despite proclaiming that students could book language lessons anytime they wanted, Nova suddenly pulled the plug on many such bookings, citing reasons including a shortage of instructors. Nova refused to accept students’ requests to have contracts terminated midterm. In June, the Economy, Trade and Industry Ministry ordered Nova to suspend for six months its soliciting and signing up of customers for new contracts of one year or longer.


Shrinking income

After the ministry’s order, Nova was swamped with demands to have contracts canceled. Sales plunged, and the company became unable to refund students’ prepaid tuition fees. Wage payments for instructors and employees were delayed, and the reeling company was finally forced to close its doors and cancel its lessons.

Sahashi reportedly attempted to procure funds by issuing at his own discretion stock purchase warrants to be allotted to overseas-based investment funds. Sahashi’s whereabouts are unknown, and even company executives have been unable to reach him, according to sources.

Nova’s management apparently decided that sitting on their hands while hoping the company could turn its fortunes around was no longer a viable option. In the end, Sahashi was dismissed as president.

If Nova goes bankrupt or lawyers consolidate its debts, Nova students would have nowhere to take lessons. Instructors and employees also would lose their jobs. Measures should be taken so students and non-Japanese instructors will not be left out on a limb.

Students have forked out about 40 billion yen in prepaid tuition fees. But under the Corporate Rehabilitation Law, payments of unpaid wages and taxes have a higher priority than repaying the tuition fees. As a result, students who paid their entire tuition fees in cash in one lump sum are very unlikely to get a full refund.


Searching for a sponsor

Nova’s most pressing task is to find a sponsor company for its rehabilitation.

Nova’s sales and students account for about 50 percent of the English-language school market. Accepting such a huge number of students at the drop of a hat would be beyond the ability of any single firm in the industry, so it is likely that retail chain companies and Internet firms will have to step in as a sponsor.

Court-appointed administrators said Nova is required to find a sponsor within one month. The administrators also indicated they would begin bankruptcy procedures if the company fails to find a sponsor during this period.

After the bubble economy burst in the early 1990s, English-language schools went belly-up one after another. In 1994, Nova accepted free of charge students from another chain with 50 schools when it went bankrupt.

The ministry must work on the assumption that Nova is incapable of getting back on its feet and arrange remedial measures, such as having other schools accept Nova’s students.