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.