Nova seeks court protection from creditors

Language school giant Nova Corp. filed for bankruptcy Friday with the Osaka District Court and said it would temporarily close all its schools nationwide.

The sudden move, which came just as labor authorities were about to question its executives, including its missing president, will leave about 300,000 students without lessons and 7,000 employees without jobs.

The nation’s biggest language school chain offered mainly English conversation classes to an estimated 420,000 students. It filed for protection from creditors under the Corporate Rehabilitation Law. It had about ¥43.9 billion in debt as of the end of July, including ¥4 billion in unpaid teacher salaries.

The court appointed two lawyers as administrators to freeze its assets and debt repayments so it can determine the company’s true financial situation.

The Jasdaq Securities Exchange said the same day that Nova stock would immediately be moved to a monitoring post and delisted on Nov. 27.

The court-appointed administrators will try to find a new sponsor to help the Osaka-based company rebuild. If they cannot find one within a month, they will dissolve the company, said Toshiaki Higashibata, one of the administrators, at a news conference in Osaka later in the day.

“If we do not take action, we will cause greater trouble for the people involved,” Nova said in a statement jointly signed by Representative Director Anders Lundqvist and two other executives.

“To avoid further confusion and drastically rebuild the company, we removed President Nozomu Sahashi from his post and filed with the court to start the rehabilitation process,” the statement said. “We profoundly apologize for the great trouble and concern we have caused through this procedure.”

Sahashi’s name did not appear on the statement and Nova said it did not know his whereabouts. Sahashi, one of Nova’s cofounders, has a 16 percent stake in the firm.

Nova said Sahashi was dismissed in absentia at an emergency board meeting late Thursday because he failed to adequately explain his “opaque way of fundraising and negotiating with potential business alliance partners.”

The board then appointed Shoichi Watanabe, Hitomi Yoshizato and Lundqvist as new directors with the right to jointly represent the company. Sahashi and Lundqvist founded Nova in 1981.

The decision to file for bankruptcy also was made at the meeting, the company said.

The struggling chain of English schools took a turn for the worse in mid-June after the Ministry of Economy, Trade and Industry ordered it to partially suspend business for six months for lying about its services when soliciting new students. Sales then plunged because the order prevented the school from recruiting new students and prompted many others to quit.

The administrators have decided to indefinitely close all of Nova’s 900 or so schools until it can sort out the mess and come up with a plan of action.

“It is to avoid confusion for now, maintain the company’s assets and judge whether corporate reconstruction is possible,” the administrators said in a statement.

While the schools are closed, they will try to come up with a new sponsor, transfer Nova’s ownership and resume operations as soon as possible to save the teachers’ jobs and resume classes, they said, asking employees to stand by.

Higashibata said the administrators were already in contact with prospective buyers. The candidates being discussed within the company so far include retailers Aeon Co. and Marui Group Co. and Internet firms Rakuten Inc. and Yahoo Japan Corp.

Nova said it is unable to give lessons and all reservations have been canceled. And since it is not allowed to pay back debt during rehabilitation, lesson fees already paid ? as well as lesson tickets already purchased ? cannot be refunded yet.

METI reportedly has asked an industry group to find new schools for Nova students.

Students who want to contact Nova about their individual cases are asked to do so via fax at (06) 6649-9790 or by regular mail to: Midosuji Minami Building 4F, 2-3-2 Nishi-Shinsaibashi, Chuo Ward, Osaka Prefecture.

Meanwhile, the Health, Labor and Welfare Ministry said it has begun accepting calls from Nova teachers concerned about their salaries and job insurance at (03) 3204-8609 in Tokyo and (06) 6344-1135 in Osaka.

Administrators said the issue of salary payments will hinge on whether the administrators can find a sponsor to rebuild the company and when.

The company has failed to pay about 2,000 Japanese employees since July and about 4,000 non-Japanese instructors since September, according to a union representing foreign teachers employed by Nova.

According to market research firm Yano Research Institute Ltd., the market for English-language schools in Japan in 2006 shrank 5.2 percent from the previous year to ¥345.9 billion.

Even before the business suspension, Yano said the market would shrink amid the ongoing population decline.

METI’s punishment on Nova’s discount system for long-term lesson contracts, which helped expand the market in the past, will inevitably cause the language-school business to slow down, the institute said in a report in July.

Nova was founded in 1981 as Nova Planning Ltd. According to METI, Nova told prospective students they could book language lessons any time they want and at any school nationwide. However, many clients complained that they were not able to reserve lessons during busy periods.

The METI probe also revealed that several Nova schools did not give full refunds to people who canceled lessons.