NOVA Corp., Japan’s largest English conversation school chain, applied for court protection from creditors late last week under the Corporate Rehabilitation Law.

The group simultaneously announced that it would temporarily close all of its 900 schools, affecting approximately 400,000 students. The failure of the largest language school in history will have a huge impact on various sectors.

In April, the Supreme Court declared that NOVA violated the Specified Commercial Transactions Law when it refused to fully repay tuition fees when students cancelled their contracts.

The Economy, Trade and Industry Ministry pointed out 18 reported cases of illegal activity by NOVA over its refusal to refund tuition fees and other problems involving cancellations, and banned the firm from making new long-term contracts with students over a six-month period.

The scandal prompted a massive number of students to cancel their contracts, which resulted in a huge drain on NOVA’s cash resources, leading to delays in paying wages to employees, including teachers, and rent. Moreover, the group struggled to find enough native speakers as instructors, forcing it to cancel classes.

NOVA rapidly expanded its chain through an aggressive TV marketing campaign, but it failed to employ enough instructors to teach its rapidly growing student base. As a result, a large number of students complained that they had difficulties booking lessons.

NOVA should have downsized its network to an appropriate level to meet its responsibilities for lessons. However, the company was apparently unable to survive without long-term tuition fees that numerous students paid in advance.

While expanding, the quality of NOVA’s service declined and the group got into disputes with students over cancellations. The government regulator became unable to ignore their complaints and took punitive measures.

NOVA was inaugurated in the Shinsaibashi district of Osaka in 1981. Without employment regulations, no employee could complain about doing unpaid overtime as a result of delays in lessons. Its founder and president Nozomu Sahashi reportedly controlled the company as a dictator.

Sahashi was reportedly working out measures to rehabilitate the company at his own discretion. He looked for a backer from among major companies such as retailers, but failed to find one. His plan to raise funds necessary to rehabilitate the company lacked transparency. Other board members consequently chose to dismiss Sahashi and make a fresh start by filing for court protection under the Corporate Rehabilitation Law.

The problem is that most of the 40 billion odd yen in advance tuition fees is unlikely to be refunded to students. Priority has been placed on wage payments and debt repayments to financial institutions, and the reminder is expected to be small judging from the volume of the company’s assets.

NOVA’s advantages are its name recognition and its scale as the largest company in the industry. It can continue its business [in the extremely unlikely event] it finds an investor to support its efforts to rehabilitate itself.

The Health, Labor and Welfare Ministry has opened consultation centers at its Tokyo and Osaka labor bureaus to provide counseling to NOVA instructors about problems involving their employment and unpaid wages.

In one case in which a language school went under, NOVA and other major conversation schools took over its students and provided lessons for which they had paid in advance.

It is an urgent task to find a new backer so that NOVA can reopen its doors at an early date. But there are difficulties involving resumption of lessons because NOVA is a huge company. Those involved in its rehabilitation are urged to do their utmost to resume lessons, including facilitating a takeover of students by rival companies.

http://mdn.mainichi.jp/national/news/20071029p2a00m0na012000c.html

Court-appointed receivers for NOVA Corp., the failed operator of Japan’s largest English conversation school chain, said they have asked the government regulator to cooperate in supporting students and bailing out the firm.

The two lawyers, Toshiaki Higashibatake and Noriaki Takahashi, made the requests in a meeting Monday with high-ranking officials of the Economy, Trade and Industry Ministry’s Service Industries Division.

In response, ministry officials urged them to make their own efforts to rehabilitate the scandal-tainted, failed company. The ministry has maintained that there is no legal framework for extend assistance to listed companies that have gone under.

The receivers are trying to find a backer to help rehabilitate NOVA and resume its suspended lessons within a month.

They warned the liquidation of NOVA would have a huge impact on society, noting students have paid a total of some 40 billion yen in advance tuition fees and that the amount of wages that it has failed to pay to employees, including instructors, amounts to about 4 billion yen.

The receivers told reporters that they cannot contact Nozomu Sahashi, the founder and sacked president of Osaka-based NOVA.

http://mdn.mainichi.jp/national/news/20071029p2a00m0na014000c.html

Embattled English language conversation chain NOVA Corp. is attracting attention for the murkiness of its share trading, its receivers said over the weekend.

Some management records have disappeared and wild fluctuations in its share price have been pointed out as appearing unnatural.

There have also been claims that efforts to secure capital before it applied for court protection from creditors on Friday lacked transparency.

Receivers announced that they plan to conduct a thorough investigation into NOVA’s share trading.

Jasdaq decided to delist NOVA on Nov. 27.

http://mdn.mainichi.jp/national/news/20071029p2a00m0na003000c.html

Nova Corp. funnelled about 100 million yen over seven years to March to a foundation under the jurisdiction of the Foreign Ministry at which former Nova president Nozomu Sahashi acts as managing director under the pretense of buying and selling teaching materials, sources said Sunday.

While Nova did develop teaching materials and conducted a certification test for the foundation, the foundation then sold the materials back to Nova at a profit. The foundation admits the money was a virtual “donation” from the language school chain operator, which on Friday filed for court protection from creditors under the Corporate Rehabilitation Law and dismissed Sahashi as president.

The directors of the foundation include former House of Representatives member and former Construction Minister Masaaki Nakayama, who has a close relationship with Sahashi. A source close to Nova said Nova derived no benefit from the arrangement.

According to reports submitted to the Foreign Ministry and other materials, the Intercultural Communication Foundation based in Chiyoda Ward, Tokyo, develops conversational English teaching materials meant for children and distributes them for profit to schools and educational organizations.

The foundation also conducts certification tests for foreign-language speaking ability.

The foundation’s business income, excluding donations, totaled 600 million yen from fiscal 2000, all of which were earned through the transactions with Nova.

In fiscal 2006, the foundation paid Nova about 158 million yen as fees for publishing and printing the teaching materials, while it recorded about 176.5 million yen as a profit for the distribution of books and materials sold to Nova and another for the certification test. As a result, it obtained a profit of about 18.5 million yen.

In practical terms, only one director worked full-time at the foundation, and development, marketing and screening of education materials were done by Nova.

Business transactions between the foundation and Nova continued even after Nova plunged into the red in the 2005-06 business years. The foundation made a total profit of 39 million yen in the two years.

The earned profits were spent for expenses to hold annual forums on food culture, in addition to paying office rent and entertainment expenses for the foundation’s directors.

The foundation was instructed by the Foreign Ministry to improve it administrative practices as the ministry pointed out that its clerical practices were inadequate.

A source close to the foundation said, “It was a donation disguised as a business transaction. We were instructed by Sahashi on transaction prices and other things.”

A former Nova executive said, “Sahashi seemed to employ the foundation as an instrument to enhance his authority as well as to form relationships with politicians.”

http://www.yomiuri.co.jp/dy/national/20071029TDY01306.htm

The decision Friday by Nova Corp., the nation’s largest foreign language conversation school chain, to file for court protection can be put down to the growing stress on its operations caused by its rapid growth.

The bigger the Osaka-based company grew, the more obvious were its weaknesses under the leadership of its former president, Nozomu Sahashi. Although the company became the market leader with its combination of eye-catching TV commercials and extensive network of classrooms, Nova could not escape the fact that it was a one-man show.

About 40 billion yen in advance payments from more than 300,000 students have gone missing.

In autumn 2004, Nova executives gathered at the company’s general headquarters in a high-rise building near JR Namba Station, to hear Sahashi’s strategy for overcoming the problems the company faced.

Sahashi is said to have told the executives, “We’ll get through this crisis by rapidly increasing the number of schools.”

Within a year, the number of Nova schools rose from a little more than 600 nationwide to more than 900. But Nova still struggled financially and in March 2006 fell into the red for the first time since its shares were listed.

Nova achieved such rapid growth because of its system of booking as sales 45 percent of the advance payments for future lessons, meaning the company was opening new schools on the basis of future revenues.

It should have been clear that if the number of new students signing up declined, the firm’s financial situation would deteriorate rapidly. However, no one in the company dared to express opposition to Sahashi’s plan.

“Even if we thought it was irrational, the culture at the company made people reluctant to speak out,” one former Nova executive said.

Nova was established in 1981 as an English conversation school by Sahashi, then 29, and a number of people he became acquainted with during his time studying in Paris. The company grew rapidly by utilizing striking TV commercials and introducing hourly lesson fees that were 20 percent to 50 percent less than its rivals’.

Though Sahashi is said to have disliked being referred to as “president” within the company, decision-making powers were heavily concentrated with him.

A former Nova executive recalled: “We needed the president’s direct approval even if we were just buying 10 personal computers. The company was like a shop being run by an individual.”

Nova’s dramatic growth meant there was a shortage of instructors, and consumer consultation centers across the country received more and more complaints about the chain, such as extreme difficulty in booking lessons.

Around 2005, Nova executives began suggesting the company should consider hiring more instructors, but Sahashi is said to have dismissed such talk. “I won’t provide schools with instructors who have poor sales performances,” he said at the time, according to company sources.

Since July, when delays in salary payments began, Sahashi has reportedly sent fax messages to boost employee morale, though many of these are said to have ended up straight in trash cans.

In the past six months, nearly 15 billion yen in new advance payments were made by students. Yet while Sahashi hesitated to act, the damage to the company was ballooning dramatically.

Nova collected a huge number of advance payments for long-term contracts, lasting up to three years, up until June, when the Economy, Trade and Industry Ministry ordered the company to stop this practice.

Unlike the country’s other five major language school chain operators, Nova failed to separate the deposited money from its own assets, and did not keep these advance payments separate in a financial institution.

This approach will be particularly damaging to students who paid in cash, as those who made advance payments with credit contracts can stop payments when they are no longer able to receive the service, in accordance with the Installment Sales Law.

According to the ministry, about 80 percent of the advance payments to Nova were made in cash, and it will depend on Nova’s corporate rehabilitation plan, which is yet to be drafted, as to how much the students will be able to get back.

With unpaid salaries, taxes and public insurance premiums prioritized by law, it is possible that in a worst-case scenario the students will get nothing back.

The Specific Commercial Transactions Law designates foreign-language conversation schools as a business obliged to continuously offer specific services. This type of contract is often problematic as it is difficult for consumers to judge whether a service is good in advance, despite having to cough up a big lump sum.

But the law only obliges such companies to explain whether the money is kept separately on contract sheets, but does not require the money to be stored separately.

As one executive at a major English conversation school chain commented dryly, “Because students have no way of knowing how the deposited money is handled, the law effectively offers tacit approval for misappropriation.”

Nova’s contracts with students stated clearly that no specific measures were taken to keep the deposited money separate. But it did say students’ money was protected by the company’s various financial assets.

Other businesses handling advance payments, such as travel agencies and firms that issue shopping coupons, are obliged by law to set aside a certain amount as a way of guaranteeing protection for consumers.

Seiji Ikemoto, a lawyer who specializes in consumer affairs, said: “Even if a contract states measures have been taken to keep deposited money separate, most consumers gloss over these details when they sign. Nova’s collapse just proves that this clause in the law doesn’t help protect consumers.”

Ikemoto suggested a change in the law that would prohibit advance payments for long-term contracts and allow industrial associations to set up funds to prepare for possible corporate failures.

http://www.yomiuri.co.jp/dy/national/20071028TDY03103.htm

In the wake of Nova Corp.’s filing for court protection Friday, employees said that although they were anxious over their livelihoods, they were relieved to no longer have to cope with a barrage of complaints from students and teachers.

Nova, the nation’s largest English-language school chain, applied for protection under the Corporate Rehabilitation Law with the Osaka District Court with debt of about 50 billion yen and suspended operations of all its schools.

Employees, mainly in their 20s, remained at their workplaces until the last moment, while many teachers had already stopped reporting to work over delays in salary payments. Lesson fees were also refunded to students who canceled their contracts with Nova. An employee in her 20s, who was manager of a branch in an office district in the Tokyo metropolitan area, said she began working for Nova after graduating from university as she wished to help people who wanted to learn English.

But she soon became dissatisfied with her position when she was instructed by the headquarters to try to get prospective students to sign lesson contracts.

As the number of branches increased around 2004 to 2005, more emphasis was placed on getting prospective students to sign contracts. In one case, one of the woman’s colleagues was reprimanded for opposing a superior over the policy.

In June, when Nova was punished by the Economy, Trade and Industry Ministry over lesson contracts and cancellation problems, she believed that Nova would recover.

She heard that the police had to be called to another branch because a student had become angry to the point of violence, apparently over a lesson contract dispute, but the headquarters offered no assistance in the matter. “I still told myself that I should hang on as long as I was getting paid,” she said.

Foreign teachers started not showing up for lessons in mid-September when their salary payments were delayed. Consequently, dozens of complaints poured in, creating chaos for the company’s inexperienced receptionists. One staff member complained of not being able to afford food, while another had been reduced to tears every day before she finally collapsed and stopped coming to the office.

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Stock speculators involved

OSAKA–A group of stock speculators charged by the Osaka District Public Prosecutors Office on suspicion of violating the Securities and Exchange Law, had been involved in a Nova capital expansion plan, the Yomiuri has learned.

The plan had been promoted by former Nova President Nozomu Sahashi, who was dismissed Thursday. Sahashi’s financial problems may have led him to contact the group, as such groups control stock prices to gain illegal profits. Nova’s court-appointed administrators stated that the move was grounds for Sahashi’s dismissal.

According to sources, Sahashi had contacted the group led by Haruo Nishida, 57, an investment adviser who was arrested by the prosecutors on Oct. 12 on suspicion of manipulating the price of a construction company stock.

Nova announced on Oct. 9 it would issue stock warrants facilitating the purchase of 200 million new stocks, nearly three times the stock that had been issued, to two investment funds, with a view to securing about 6.4 billion yen. The funds are located in the Virgin Islands.

Nishida is said to have known people related to the investment funds and invited investors to Nova’s plan before it was announced.

http://www.yomiuri.co.jp/dy/national/20071028TDY02309.htm

The New Zealand embassy in Japan says hundreds of New Zealanders have been caught out by the closure of the country’s biggest English language school chain.

Thousands of foreign teachers have been made jobless and face expulsion from Japan after the Nova English language schools folded.

The embassy says it has received a steady flow of calls from New Zealand teachers starting to experience financial problems.

Many of the workers have not been paid for months as the company struggled to stay afloat.

The embassy says Nova had employed 200 New Zealanders.

It is advising those in financial difficulties to contact the company’s regional offices, or seek assistance from their bank, insurance company, family or friends.

http://www.radionz.co.nz/news/latest/200710281048/japanese_chains_closure_hurts_new_zealand_teachers

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.

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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.

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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.

http://www.yomiuri.co.jp/dy/editorial/20071028TDY04308.htm

Thousands of foreign teachers have been made jobless and face expulsion from Japan after the country’s biggest chain of English language schools folded and sought protection from creditors.

Nova Corp said on Friday that it has filed for court protection from creditors amid efforts to turn its business around after being punished by authorities for misleading students.

Nova has some 7,000 employees, of whom about 4,000 are foreigners, Japanese media estimated. Many have not been paid for months as the company struggled to keep afloat.

The British and Australian embassies in Tokyo are offering advice to its nationals left jobless.

About 300,000 students, many of whom who have prepaid for lessons, are also affected by the school shutdown.

“It’s a quite a large problem,” said an official at Australia’s Department of Foreign Affairs and Trade in Canberra. The Australian government estimates about 900 Australians are employed at Nova.

The Australian government has asked national carrier Qantas to offer reduced airfare for a limited period to Australian Nova employees wishing to go home.

The British Embassy also said on its web site on Saturday that it was “aware of recent concerns regarding payment of wages to Nova employees,” and said they are “closely monitoring the situation.”

It urged the employees to contact regional Nova offices and workers’ union representing the company’s workers.

Many teachers, unaware that the company had decided to file for court protection, turned up at work on Friday only to find the schools closed.

“Teachers are always the last ones to be told,” the Japan Times newspaper quoted 32-year old Genevieve Latimer, an Australian, as saying. “I haven’t even received my September paycheck.”

Many teachers are also left worried about their visa status.

Nova, which operates over 900 schools in Japan, posted net losses for the past two business years and said it held a total 43.9 billion yen in debt as of July.

Nova said a rapid expansion has lowered its profitability and a government penalty to curb taking on new students has hit revenues.

In June, the trade ministry punished Nova for misleading prospective students about its services. The company was forbidden for six months from signing up students for contracts that were on year or longer, or more than 70 hours of lessons.

Two lawyers, appointed by the court to oversee Nova’s assets and other affairs, told a news conference on Friday they would try to find a sponsor to help rebuild the company, but would dissolve the firm if they could not do so within a month.

Japanese internet firm Rakuten Inc has shown an interest in helping Nova, a Japanese daily Asahi Shimbun reported on Saturday.

The lawyers said they would contact Aeon Co Ltd, Japan’s second-largest retail group, and other companies on the possibility of becoming a sponsor, the paper said.

http://www.washingtonpost.com/wp-dyn/content/article/2007/10/27/AR2007102700334.html

Hundreds of New Zealand teachers face unemployment and eviction from their homes after the collapse of one of Japan’s biggest English language schools.

The Nova group has been in trouble for months and has now closed its doors and called in the receivers with debts of over 500 million dollars.

Nova’s 6,000 staff had already been worried the company was going under.

Many were owed at least a months pay.

Now their worst fears have come true.

As well as no pay cheque many foreign staff face eviction because Nova was paying their rent.

Nova had employed around 500 New Zealanders – but many had already quit after they weren’t paid last month.

The company’s problems began when it expanded too rapidly and then fell foul of Japanese education authorities for failing to deliver on promises made to its students.

Faced with no work and Japan’s high cost of living many foreign staff are expected to head home.

The New Zealand embassy in Japan is offering advice to staff about other possible work or whether they might be eligible for redundancy or unemployment insurance.

http://www.tv3.co.nz/News/HundredsofNZteacherslosejobsinJapan/tabid/209/articleID/37869/Default.aspx