Nova’s President Saruhashi ousted; Nova files for bankruptcy protection with 43.9 billion yen in liabilities

October 26, 2007
By Ken Worsley

The Yomiuri provided some late night/early morning articles that certainly woke us up: According to one article, Nova President Nozomu Saruhashi failed to show for an emergency board meeting and was dismissed by the other board members. Board member Katsuichi Watanabe is now apparently in charge of the firm.

A second article tells us that Nova’s liabilities are no small potatoes - according to the Yomiuri, Nova’s debts are somewhere in the neighborhood of 50 billion yen. This is slightly lower than the 60 billion I had been estimating, and higher than the 46 billion listed on the company’s most recent financial report. The firm apparently intends to petition the government for bankruptcy protection under the Corporate Rehabilitation Law. Edit: The application has been approved.

Comments

72 Responses to “Nova’s President Saruhashi ousted; Nova files for bankruptcy protection with 43.9 billion yen in liabilities”

Chris on October 26th, 2007 8:15 am

Crazy news, but your link to the 50 million yen debt story seems to be broken.
Chris on October 26th, 2007 8:18 am

Sorry, that should have been fifty BILLION.
cyb on October 26th, 2007 9:26 am

Would anyone be able to tell us what this may mean for teachers
that are owed money from nova? Even in the long term…

cheers
Ken Worsley on October 26th, 2007 10:13 am

cyb, I don’t think it changes much at all.

As for the long term, I’m not sure how the company will last until tomorrow.
Bill909 on October 26th, 2007 11:31 am

Nova’s doors didn’t open today. After calling FP, they said that Sahashi was fired and not allowed on any of the premises. It will be closesd for one week while they try to sort through what is going on. After that, they will see if someone wants to buy whats left of the company to keep business going on as usual. If no one buys Nova, they will probably declare bankruptcy. If anything though, atleast I don’t have to see another “Monkey-Bridge Fax”. The should be making an announcement about it later today on http://www.nova.ne.jp/
Chris on October 26th, 2007 12:02 pm

Nova reopening - chances SFA.. 50billion in debt.. you could probably safely assume that you need at least 150 billion that to get the company back on to recovery…

who is going to drop that kind of money on a company with less goodwill than GWB.

(not the Chris above).
Cervantes on October 26th, 2007 1:01 pm

All as Bill909 says, but MMC will be closed for 10 days. Time will tell.
Matt Dioguardi on October 26th, 2007 1:14 pm

Here’s an article at the Asahi detailing some of the happenings:
www.asahi.com/business/update/1026/TKY200710260002.html
Garrett on October 26th, 2007 1:47 pm

Given that the delisting is not until November 27th, is trading likely to remain suspended until then? If not, what are the BVI-based Callumberg funds going to do? Is there any point in their even shorting the junk for which they have warrants now? Did they do anything yesterday?

I have to admit that there would be a certain amount of schadenfreude involved, on my part, if they took a big hit over this. Granted, it probably won’t hurt them, but it’d still be nice to see these shady operators get stuck holding the bag.

Have any charges against Saruhashi actually been filed yet?
Joe Jones on October 26th, 2007 3:59 pm

Lots in the Nikkei right now…

METI wants to keep NOVA intact to avoid hurting existing students:
http://www.nikkei.co.jp/news/keizai/20071026AT3S2600R26102007.html

Government bringing in English interpreters to handle NOVA teachers’ unemployment issues:
http://www.nikkei.co.jp/news/main/20071026AT1G2601526102007.html
Doge on October 26th, 2007 4:53 pm

From what I understand, they’re going to take 10 days off, with the schools closed, try to find a buyer or something, and then decide whether to seek protection or liquidation. Talk about indecisive. Hope the board of directors are stocking up on convenience store job applications.
GG on October 26th, 2007 5:24 pm

Given that Nova had reported 46 billion yen in liabilities on their last quarterly financial report (for the April-June quarter), which I remember reading about here, I’m not sure what made you think they had only 20 billion yen in liabilities now. Am I missing something?
Ken Worsley on October 26th, 2007 6:46 pm

GG - sorry, that is confusing. I should have made the distinction between liabilities on the balance sheet and additional liabilities incurred over the current quarter, which is what I was thinking of. That figure should have read 60, not 20. The 1st quarter balance sheet lists a little over 46 billion yen in liabilities (as of June 30, 2007).

I was estimating previously that the 46 billion could have mushroomed as high as 60 billion, as unpaid rent, refunds and payroll added up. It seems odd to me that the amount listed in today’s press releases (43.9 billion yen) is less than the liabilities listed on the 1st quarter FY2008 balance sheet, unless an absolute TON of assets have been sold off. They had 2.2 billion yen in cash, that has to be gone. 3 billion yen in land, that could have been sold off…Even selling those off my estimate is still around 50-55 billion yen.
cynicforever on October 26th, 2007 8:14 pm

Speaking at a press conference after today’s Cabinet meeting, METI minister Akira Amari stated that maximum efforts should be made to rehabilitate the firm in order to lessen the amount of trouble experienced by students.

TROUBLE EXPERIENCED BY STUDENTS????
What about the teachers who havent been paid and are stranded far from home. Im sure all those ‘troubled students’ will have something to eat tomorrow!
Ken Worsley on October 26th, 2007 8:25 pm

cynicforever,

I totally see where you’re coming from. I think we need to keep in mind that Mr Amari’s comments were made immediately after a Cabinet meeting in the morning, before he probably had time to be fully briefed on the situation. He was in charge of METI when the sanctions were handed out, so it’s hard to accuse him of being soft on the firm thus far.

I wonder if the comments were not a bit of tatemae - he did not say anything like the government would bail them out, or even help them - just that it would be better if the company could be rehabilitated rather than liquidated.

I can agree with that, though I don’t think it’s possible.
billy shears on October 26th, 2007 8:42 pm

I think Amari’s comments are a precursor to a spell of METI arse-covering. They may well feel that they themselves will be on the end of some finger-pointing by not just a few of the 400,000 or so students who have “done their money”.
Garrett on October 26th, 2007 10:52 pm

And what would happen to METI if some students got angry and said METI should have done more? I think it would kind of hard for Nova’s customers to pin blame on METI, considering METI’s biggest action in the case was in defense of consumers. Besides, what are they going to do about it? Gripe if pressed?

I’m with Ken here - Amari wasn’t going to give anything away at that moment. Just utter a few of the right words for the cameras.

On a different note, Asahi ran a report tonight (possibly largely the same one they ran this morning and this afternoon), which included a reporter getting a bit aggressive with Anders Lundqvist. Anders said, in English, that he couldn’t comment and the reporter followed him, with the night-vision camera, asking, “Why? Why? Why you can’t?” It’s nice to see reporters try to report once in a while.

Maybe Nova missed the boat by not setting up a press club as soon as they got slapped with the METI sanctions.
Tristan on October 26th, 2007 11:48 pm

Thorough stuff-I have been unimpressed with the medias focus on students-probably if not certainly,on average,they have lost more in total cash amounts than foreign staff especially teachers,but they have a government voicing concern&who will support them even if minimally,families&friends to help them,no problems with reading,writing or communication-there will be people,teachers,literally stuck in Japan,one of the most expensive,least foreigner friendly countries in the world,with no support network,no plan B extant:they will be the first to suffer.I feel sorry for students,especially those that bought large packages in cash,but they were paying for something that was not more than a hairsbreath from a luxury for most,whereas teachers won’t be able to afford NECESSITIES,nor return home easily-they should be the first priority.
Joe on October 27th, 2007 1:55 am

NOVA teachers can’t vote. So case closed—the students will be taken care of first. Sad, but that’s how politics work here. (cf. fingerprinting at the airports)
Ken Worsley on October 27th, 2007 2:03 am

Joe - wait - as far as I know, that’s not how bankruptcy law works, and not what we’ve seen in several other eikaiwa bankruptcy cases. Do you have any cases to cite where customers leaped ahead of employees in terms of settlement at liquidation? I know Nova’s not liquidating now, but it’s a matter of weeks.
billy shears on October 27th, 2007 2:05 am

In a typical piece of poor government, METI obviously didn’t fully consider the consequences of their tardy, therefore knee-jerk reactions to the situation. Even the most casual of observers could see that, far from protecting Nova consumers, such a punishment to an already ailing company was bound to put the whole concern, including billions of yen of pre-paid lessons, in jeopardy.
Sure, offer strict guidelines toward future conduct, but why place such punitive restrictions on the business itself ? Any fiscal punishments handed out should have been on a personal basis to the directors and/or management directly concerned for orchestrating any wrongdoings (i.e. Sahashi).
Now, METI has put itself in a quandary and the squirming has already begun.
Thierry La Fronde on October 27th, 2007 2:27 am

Ken, you and your predictions! You’re a genius! How do you do it?
Ken Worsley on October 27th, 2007 2:32 am

Billy, To be honest, I find it very difficult to point a finger a METI in this case. The Supreme Court of Japan determined that the refund system was illegal - this left METI with very little choice if the management was unwilling to alter their business practices. Mr Amari has embarked on a bit of a campaign for consumer’s rights, which has led METI to impose sanctions on several firms that have been breaking the law, not only Nova.

There seems to be a realization that these firms are hurting the economy, by producing nothing of real value and only angering consumers by continually flouting the law. Let’s not forget that consumer spending accounts for over 50% of Japan’s GDP. If there is no trust in the services industry, consumers will stop spending enough to cause real pain - especially when the pension fund is to be 50% funded by consumption tax by 2011, which means that domestic consumption must be boosted.

Some will argue that law-bending corporate strategies were allowed in the past, and still are now. I don’t really think that mitigates culpability of the senior management at this firm, though it is an issue worthy of much further discussion.

I do think that the profit margin at Nova depended on how far they could bend the law. This is bad business practice, and shows a lack of risk management. The Consumer Protection law was changed in 1997 to allow customers to get a refund on the unused portion of a contract in the even that they were not receiving the services that were advertised. Nova had almost a decade to react to this law and the changes it would bring in terms of market reality, but never did. It never really changed its lineup of products and services into something that customers would truly benefit from; it depended on having a never ending, revolving door of customers ignorant of their rights under the law, and not really caring about providing them with the services they had paid for.
Ken Worsley on October 27th, 2007 2:37 am

Thierry: No, I’m not that at all, not by any stretch of the imagination. The thing is, Nova is (was?) a public company and its financial statements are publicly available; they tell a damning story of a firm that has been heavily in debt for some time. Crunching the numbers, looking at the industry trends over the past few years, estimating operating costs based on averages, and estimating projections of damage from mitigating factors led to no other conclusion than they would run out of cash and be unable to function sometime before November 1.

I didn’t make the prediction; Nova’s senior management did. I just read the results of what they wrote.
J on October 27th, 2007 2:39 am

billy boy,

you seem to think this is all METI’s fault from your comments.

Do you realize that NOVA had a poor business plan? It was Nova’s

fault and no one else is to blame. METI will not point fingers.

Business 101…
John S on October 27th, 2007 2:44 am

Billy, Blaming METI? I don’t know…I think that’s kind of like me saying I have a drinking problem because the guys at the convenience store won’t stop selling booze to me.

And if that doesn’t make sense, I’m sorry…I’ve been drinking.
Mashu on October 27th, 2007 8:31 am

Nova’s business model was flawed from the start or soon after. A quasi Ponzi scheme that would eventually run out of new cash injections it got caught in the downward spiral. All blame must go to management and the board of directors–who as adults–should have seen where this business model was headed. In a way, it is kind of a text book case as how NOT to run a chain-style business.

BTW–top reporting Ken. Really enjoy TPRadio as well.
cheers
J on October 27th, 2007 8:55 am

Makes perfect sense.

Saw this one this morning. I think I am right on this one Ken.

Nova teacher’s probably won’t get their salaries…

http://www.japantoday.com/jp/news/420669
Garrett on October 27th, 2007 9:39 am

I think the other thing being left out here is the deterrent nature of punitive sanctions. Giving orders clearly didn’t work, making laws alone didn’t work. If METI actually wants to stop illegal practices, it has to show that the law is the most important thing, that no one is exempt, and that it has the will to enforce the law, even to a devastating extent.

Horiemon and Murakami’s convictions sent a message, as did the sanctions against Comsn. Nova is a part of that. Companies cannot be given breaks for illegal activity.

Besides, the crux of the METI sanctions hurt Nova’s future income, but, if Nova had a feasible business plan or were actually to do what it promised, that would not have been an issue to current customers.
Joe on October 27th, 2007 11:35 am

Ken: I wasn’t talking about bankruptcy. Unpaid salary naturally comes out first. I was talking about the government and media response to the situation more generally.
billy shears on October 27th, 2007 11:39 am

Ken , J and John S haven’t addressed, or haven’t understood, my core argument concerning METI. We all know the history and reasons for Nova’s initial decline, and I never mentioned that METI were part of those.
METI’s punitive measures merely exacerbated the situation and were as such the final nail in the coffin.
You might say that’s a good thing and good riddance to such a bad company; but I say METI has directly contributed to a situation which has left thousands and thousands of students out of pocket, thousands out of a job and put the whole industry under a cloud.
Was that METI’s intention ? Of course not; it’s just that the measures they meted out were off the top of someone’s head and their consequences were obviously never considered.
If I were a Nova student with 600 points left, I would (among other things !) ask myself: how did METI protect me ? Could METI have done things differently to make the company operate on a legal basis without helping it go down the tubes ?
How can you not answer that question in the affirmative ?
Trev on October 27th, 2007 12:01 pm

I did a stint at Nova in 1996-97 when I first came to Japan. Even then it was obvious that their profit margin was based on students not using all their lesson tickets. When the laws were toughened so that students could get refunds, a lot of other eikaiwa closed and it was pretty obvious that Nova had to either change its business model or face long-term problems. They tried to keep on with the old business model, so the only way to remain profitable was to break the law. Nova was a criminal enterprise, and it was only a matter of time before they got shut down. The only blame I can put on the authorities is that they should have acted years ago to pop this bubble. The blame for all this lies completely on Saruhashi and the other top manager’s heads. I have a great deal of sympathy for the teachers, staff, students, and everyone else who’s been stung by this, but Nova was a dirty, crooked, rotten company and shutting it down is the only decent thing to do.
Ken Worsley on October 27th, 2007 5:23 pm

Joe,

I was talking about the government and media response to the situation more generally.

Ok, I see what you mean. Thus far, other than one offhand remark by the NHK anchor, I would have to say the media has teachers, students and then Japanese staff in its sympathy order. It will be interesting to see how this develops.
Ken Worsley on October 27th, 2007 5:32 pm

I say METI has directly contributed to a situation which has left thousands and thousands of students out of pocket, thousands out of a job and put the whole industry under a cloud.

Nova’s management is 100% to blame for this situation.

If I were a Nova student with 600 points left, I would (among other things !) ask myself: how did METI protect me?

It might not have protected you as much as it could have. METI might have acted later than it should have. But, these are adults, and METI cannot babysit the entire Japanese public. Adults need to make mature purchasing decisions and evaluate the firms they hand their money too. That’s part of being an adult.

If I get mugged, can I blame the police for failing to protect me? Nope.

Trying to shift blame from Nova’s management to METI doesn’t fly.

I know that some people will do it, and that there may be some public perception that METI is to blame. Ultimately, such a position fails to convince.
billy shears on October 27th, 2007 6:08 pm

I think many don’t realize that however “dirty, crooked and rotten” Nova was, the vast majority of their many customers were quite satisfied (even right up to the last day) with the product they purchased. Those quoted derogations besmirch all concerned with Nova and it should be remembered that many talented and dedicated people did in fact work for the company.
Many might also think that Nova has no cause for any vindication or mitigation whatsoever. But is that strictly true ?
Many people after taking on a new course of learning, infused with the initial flush of enthusiasm, later become disillusioned that it wasn’t as easy as expected and some hard work on their own part was necessary. Exercise machines are a good example of a product prone to this “mikka bozu” effect (start with enthusiasm for 3 days but then give up). If I get fed up with that machine after a few months (or years in some cases), do I have the right to a refund ?
Admittedly, Nova promised lessons at the student’s own convenience and if this promise couldn’t be fulfilled a (pro-rata) refund was in order. But (out of the MILLIONS of lessons taken) how often did this occur, and (out of the MILLIONS of students who have passed through Nova’s doors over the years) how many wanted and yet couldn’t get pro-rata refunds ?
Nova without a doubt had many flaws, but if Nova was a “criminal enterprise” for so many years (or even months), why was Sahashi never prosecuted ? Surely, that would have been the best solution to the problem and might ultimately have saved the company.
“It was only a matter of time before they got shut down”…the ironic point here is that METI had no intention of shutting Nova down and are now in the position of pleading for a “sponsor” to carry on the business somehow.
Ken Worsley on October 27th, 2007 6:11 pm

Billy, I look forward to reading the answers to those questions once you’ve taken the time to research them.
Garrett on October 27th, 2007 6:15 pm

Billy, consumer-protection is not METI’s job per se. They are in charge of industrial and business rgulations. A six-month suspension of the specific business activity that had produced the most legal violations is neither inordinate nor ill-considered. Quite the contrary. It is a highly fitting sanction that was levied in response to legeal violations on the part of Nova. That it contributed to Nova’s demise in no one’s fault, at all, but Nova’s.
Trev on October 27th, 2007 6:25 pm

“the vast majority of their many customers were quite satisfied (even right up to the last day) with the product they purchased”

“it should be remembered that many talented and dedicated people did in fact work for the company”

I have a great deal of respect and sympathy for the students, teachers, and staff. Those people are victims. The top management of Nova are to blame for this, they knew for years that their business model was flawed, yet persisted with it.

The head teacher back when I worked for Nova (1997) reckoned that 30% of the tickets sold weren’t ever used. I have no way of verifying that, but from what I saw, it seems quite credible. What this means is, if Nova students used all their lesson tickets or got refunds, then Nova could not make a profit. In those days, Nova (and I imagine, the other eikaiwa too) would almost never refund money. The law was changed so that they had to refund lesson fees, and lots of eikaiwa schools closed.

What Nova did, and it’s not at all credible that this wasn’t known about and encouraged by the top management, was to try and cheat on this. The suspension of business was because of long-term dishonest practices. Without those dishonest practices, Nova was not a viable business. It was a criminal enterprise, organized around swindling their customers and violating the law.

The same goes for their labor practices. I was involved in labor dispute negotiations with them, and they simply refused to obey the law. They were a bunch of crooks.

Nova was a dirty, stinking, rotten, festering disgrace. I really feel bad for the victims, but Japan is better off with Nova shut down.
Huth on October 27th, 2007 6:39 pm

I think many don’t realize that however “dirty, crooked and rotten” Nova was, the vast majority of their many customers were quite satisfied (even right up to the last day) with the product they purchased.

Just because people are satisfied with a product - which you claim, but offer no evidence for - does not make it legal. Some people are perfectly satisfied with the drugs they get from their dealer. Does that make it legal? Nope.

I find it odd that someone is working so hard to stretch the perception of events and find a way to let Nova’s management off the hook. We’re talking about a firm that broke the law in many ways, continually, over many years. It doesn’t matter how good their people are or how happy their customers were.

They operated on the assumption that they could break the law. They got caught, warned and given a second chance. They kept breaking the law and they got shut down.
billy shears on October 27th, 2007 7:13 pm

Huth, your analogy suggests Nova students were also breaking the law by purchasing Nova lessons; therefore it is obviously a false analogy.
A huge number of students continued to sign up for lessons after their points ran out, strongly suggesting customer satisfaction. My feedback from students whilst teaching part time at Nova for many years led me to the same conclusion.
And where did I mention letting those responsible off the hook ? I clearly suggested that if they had broken the law, they should have been prosecuted on a personal basis. And I’ll repeat once more, Nova were not directly shut down and METI had no intention of doing so .
Ken and Garret, it appears you still haven’t grasped my point. METI took punitive actions which they now regret. I am not trying to shift the blame for Nova’s failed business model on to METI. I’m blaming METI for an ill-conceived, knee-jerk response.
“A highly-fitting” sanction ? On what specific grounds ? What are the exact reasons for a 6-month penalty ? Is this the prescribed punishment in law ? Why not 6 weeks or 6 years ?
And if METI themselves feel fully vindicated with their decision, why such a pandering response to yesterday’s events ?
Ken Worsley on October 27th, 2007 8:21 pm

Billy, When has METI said they regret having taken punitive measures against Nova? I see no evidence that an official statement has been released by the ministry stating that position; have you seen one? I see no evidence whatsoever that METI regrets its actions. I also see no evidence that the measures were a “knee-jerk response.” None of these assertions make much sense to me, nor seem to reflect the reality of the situation.

As far as the term of the punishment, this is in line with many previous METI punitive decisions. I would recommend asking someone at METI why 6 months is the chosen time for punitive measures.
Ron Vanden on October 27th, 2007 8:59 pm

An intriguing question, and it would be a factor in any company’s decision (withing the next 8 days!) to pick up where NOVA left off, would be: at what level of (presumably increased) prices to students could the business become profitable long term?

We know that Saruhashi got into trouble by his expansion program of two or so years ago, wasting huge amounts of money, so that’s one aspect of the business that would have to be factored into an answer. From talk around the water cooler at NOVA I got the impression that their branch pre-opening research, especially that last big expansion push, was laughable and as close to nil as you could get. From what I’ve heard, organizations like McDonald’s Corp. are far from off-the-cuff haphazard in how they go about deciding the critical issues of where and when to open stores, not to mention their decisions regarding a host of other tactical and strategic issues.

Another element in long-term viability using the pre-paid lesson model would obviously be that revenue is recognized when lessons are actually taken, not before.

So, if we assume a law-abiding, very efficiently run organization, at what marginal increase in price do potential students balk, rendering the business model a bust?

Now Ken, before you say how interested you’ll be to get the answer to that question once I’ve researched it, just let me say I’m not going to do it, unless of course said “sponsor” promised me an executive level job in the new entity. But if any reader of this thread wishes to take the bait I’d be as curious as Ken would be in reading their arguments.
Ken Worsley on October 27th, 2007 9:11 pm

Ron, excellent questions. I would expect any firm interested in coming on board here to be conducting extensive research and looking at the risk/reward to getting involved. I have a feeling that few will find it worth it; this is not a growth market and has dim prospects for future financial success compared to other, more currently marketable business sectors.
billy shears on October 27th, 2007 9:21 pm

Of course, METI are not going to admit straight out that they messed up ! But the underlying tone of their response is both an exercise in self-defense and a strenous effort to ameliorate those affected.

This is from a recent news article:

In a separate news conference, Shinji Fujino, METI’s service industry division director, said it is not appropriate for the government to bail out the company with taxpayers’ money.

“It is not as if we are authorized by any specific laws to help Nova,” Fujino said.

The ministry said it is asking the Japan Association for the Promotion of Foreign Language Education, an industry body, to call on its member schools to accept Nova students.

It expressed the hope that Nova will continue operations, rather than be completely liquidated.

METI also requested consumer credit companies not to seek loan repayments from Nova students at a time when they are unable to take lessons because Nova has ceased operations. Around 20% of Nova students paid their tuition with loans from these firms.

“Because Nova is a listed company, the principle of self-responsibility must be applied,” METI Minister Akira Amari said at a separate news conference.
______________________________________________________________
Self-responsibility ? In that case, why does METI feel the need to express “hope that Nova will continue operations” ? Why take the highly unusual step of asking credit companies not to seek loan repayments and other schools to take on Nova students (presumably free of charge) ?
J on October 27th, 2007 9:21 pm

Billy Boy,

Take a look at Nova’s balance sheet prior to any of this METI stuff.

You will see the company was in HORRIBLE shape and was going bankrupt.

In any other industrialized company it would have already been finished/bankrupt.

It is just that Japan allows such a high debt ratio. So, it does not make

a difference how good the product is (was in this case) and how satisfied people

are with it when the company is in debt as bad as it was. Nova was not fiscally well.

It had a cancer beyond repair. All of this is BEFORE any METI stuff came into play.

So, your argument is pointless.
J on October 27th, 2007 9:24 pm

Ronnie V-

Nova is finished so don’t worry about any comeback. Just concentrate
on getting a new job.
Garrett on October 27th, 2007 10:12 pm

Billy, you might have had a great experience, with students you really liked and who really liked the school, at Nova, but this does not make your assertions true. What makes you say METI backed away from their decision? Just because METI didn’t crow over Nova’s filing for bankruptcy protection and allowed Nova to stick around, METI regrets its decision? I don’t follow this.
As for what METI did, six months is a fairly standard period for such a penalty and, in this case, is particularly fitting. Nova’s bread and butter and the type of contract in question was one of a year or more in duration, making the penalty six months hurts Nova financially, which is kind of the point, without going beyond the company’s existing contracts, thus not guaranteeing its doom. The fact that six months without new year-long contracts sank Nova shows a staggering lack of planning on Nova’s part.

As for customer satisfaction, I question where you get the information leading to your conclusion that the majority of Nova’s customers was satisfied. The “re-up” rate was around 3%, the cancellation rate skyrocketed once students knew they could get their money back - doesn’t sound like a big bunch of satisfied customers to me.

METI’s response to Nova’s announcement was typical - a non-statement, not kicking Nova when it’s down means nothing.
Ken Worsley on October 27th, 2007 10:18 pm

In that case, why does METI feel the need to express “hope that Nova will continue operations” ? Why take the highly unusual step of asking credit companies not to seek loan repayments and other schools to take on Nova students (presumably free of charge) ?

Billy, you’re conflating separate issues here. Debt repayment and protection from creditors falls under the Corporate Rehabilitation Act, under which Nova applied and had its application accepted. Protection from creditors is NOT given by a METI decision, it is the law.

Please, read and research the relevant laws before commenting on how they work.

METI never said it hopes Nova continues operations. One person who works at METI said that. It was good PR, and a hint of tatemae at a press conference. It was not, and should not be taken as, an official statement representative of the ministry’s viewpoints.
billy shears on October 28th, 2007 12:12 am

I never mentioned NOVA’s debt repayment. METI asked loan companies to refrain from asking for repayments from STUDENTS. Are you saying student’s don’t have to repay their loans by law ??? A METI spokesperson said it hoped Nova continued. For most people, that would seem to represent METI’s official stance.
“As for what METI did, six months is a fairly standard period for such a penalty and, in this case, is particularly fitting.” Fairly standard ? What are the precedents ? “The “re-up” rate was 3%” ??? When ??? Please show me the official figures on that. The cancellation rate rocketed after METI’s sanctions on the company.
Huth on October 28th, 2007 12:57 am

Billy, I did not intend to suggest that the students were breaking the law. My point is that customer satisfaction has absoluetly nothing to do with whether or not the service is breaking the law. The law is the law, and it’s independent of customer satisfaction or popular opinion.
billy shears on October 28th, 2007 1:10 am

Huth,
What exactly were the specific laws broken ? The beginning of the contract cancellation period was wrongly presented. The Nova CMs and ads were adjudged to be exaggerated. Nova was deemed to have to give full refunds on discounted lessons. All absolutely shocking, but not quite drug peddling.
Huth on October 28th, 2007 1:31 am

From what I understand, Nova broke the 1997 Consumer Protection Act. The supreme court found them in violation of the law. if you disagree, better take it up with the supreme court, not me.
Garrett on October 28th, 2007 1:43 am

Billy, perhaps some of the energy you’re putting into vitriol would be better spent on research.

None of the facts and figures presented in this thread have been anything other than publicly available information. There’s no reason you should be incapable of finding out what anyone else here has found out.

You’re taking one statement way out of context and attaching way too much weight to it, then adding that to a fundamental misunderstanding of what METI’s job and powers are, then adding that to an apparent misunderstanding of what happened.

Nova had a fundamentally flawed business plan, it also broke the law repeatedly. This drew a legal punishment. nova’s customers were hurt by Nova’s ilegal actions and its inability to make up for those illegal actions with money it might have made had it not been punished.

That’s it. No one here is saying Nova’s directors are the worst criminals ever, but they did break the law. One guy from METI basically said, “I hope they continue.” What’s he supposed to say? “I hope they crumble into dust?”
A Special Message « The Poetist on October 28th, 2007 1:56 am

[…] From Ken Worsley at Japan Economy & News, his piece in Metropolis. […]
Ron Vanden on October 28th, 2007 2:13 am

J,

“Nova is finished so don’t worry about any comeback. Just concentrate
on getting a new job.”

I will concentrate on getting a new job, but not ‘just’ that. I am capable of, and really do enjoy, exploring and thinking about business and investing issues in and of themselves, quite separate from my own connection to them; thus my post here.

Naturally I also have a great interest in this case because of my own involvement. And I enjoy that involved approach as much as I do detached analysis.

As far as a comeback is concerned my worry (an extremely minor one) is that they do in fact come back. I hope they don’t.
billy shears on October 28th, 2007 2:15 am

Garrett,
I’m afraid we are never going to agree. The only point I was trying to make was that METI meted out a punitive punishment that never took into account its obvious consequences…that driving the final nail in Nova’s coffin meant that ALL concerned with this matter would suffer, including hundreds of thousands of innocent people (and children, I might add). Something better could and should have been worked out, such as punishing Sahashi on a personal basis. And I’m pretty sure METI are now regretting those consequences.
You’re basically saying METI had no flexibility on the matter and had to hand out a 6-month suspension of new business. However much I try to research that assertion, I just can’t seem to pinpoint the facts. So, all I asked for are the precedents you’ve said you’ve found. Where’s the “vitriol” ? In my dictionary, vitriol is referred to as abusive or venomous language (or sulphuric acid).
Ken Worsley on October 28th, 2007 2:18 am

Billy, Given that Nova was pretty much already on the way to bankruptcy, do you think it at all possible that METI did actually intend to produce such consequences?
billy shears on October 28th, 2007 2:42 am

No, Ken, I don’t.

Looking into the future, despite all that has happened, I believe the actual brand name “Nova” is still of value. Other companies have been resurrected here after going through various scandals and the ubiquitous “blue and yellow” signs are still synonymous with “eikaiwa”.
Maybe an interesting possibility would be some kind of franchising system…yes, a kind of McNova !
WG on October 28th, 2007 3:10 am

I don’t know if bankruptcy was METI’s ‘intended consequence’ but they must have known the firm was close to it anyway. I’m willing to bet that they wanted to see Sahashi resign and for the company to clean up its act; it didn’t. Billy, NOVA clearly broke the law, several of them in fact, and has been found guilty by several courts in Japan of breaking various laws…consumer protection, labor and even in the case of its ‘non-fratrenization’ policy.

Whether the brand is worth something is interesting. I don’t really think so. It will be interesting to see what happens with these four firms that were named as potential ’sponsors’ for NOVA. Marui has apparently said they are not interested.

Franchising would be a nightmare, in my opinion, because without proper management control, franchises tend to have quality problems. I don’t see anyone with the right amount of management acumen coming in to work for Nova right now…it’s sort of a joke company in a dying industry that few people have much respect for.
YangChao on October 28th, 2007 4:54 am

yomiuri newspaper wrote a editorial in 10/28.
http://www.yomiuri.co.jp/editorial/news/20071027ig90.htm
1>
it argues that METI should do its best to protect the benfits of the students of NOVA. The reason mentioned by the editorial is that many students will become victims if NOVA is declared to go to bankruptcy. (Even though the instructors of NOVA are also listed as the victims by the editorial, i don’t think that Japanese people rearly care about the benefits of Gaijin (foreigners).) You can see the discussions of japanese on the issure of NOVA in forum of 2 channel.). The best way to do this is: divide NOVA into several small parts and then sale them to several firms that are interesting in NOVA , according to the editorial’s opinion. And also the editorial mentioned that NOVA received the students from other bankrupted english language school in 1994.
2>
I have seen almost all of dicussions of Japanese on the issue of NOVA collapse. Basically, most Japanese do not think that NOVA is no longer a valuable brand, and are doubt whether there are buyers to should the massive debt. This is also the view of Nikki newspaper, which is professional at economic analysis.
3>
According to today’s news of Nikki morning newspaper(27), the bankruptcy news in 26th is declared in a office in shinjyuku in Tokyo by the three top persons of NOVA. In another office which is next to the office where the three top persons was signing the declaration of bankruptcy of NOVA, Sahashi president was walking around with an mobil in his hand. So, I think that there aren’t indeed some conflits among them.They just made up all of these to hide the facts that they have stolen all of money from NOVA. When 70 million Yen was deposited into the account of NOVA, they declared the bankruptcy at once. A japanese person who has done school business for a long time also doubt the validity of the declaration by the three top persons. He also mentioned that there are some invalid process when sahashi wanted to get money from the two funds. So where is 70 million Yen that deposited in 24th October?
http://kaishahou.cocolog-nifty.com/
There is another point that i have to say. I didnot sleep in the daynight of 25th. At about Am 5 26th, I saw the declaration news of NOVA from site of yomiuri, and about AM 7:00, the names of two lawers that were appointed to controll of NOVA has been decided and declared. All of process is so quiclky that all of these thingss are seemed to be planed previously. And almost at the same time, the notice by the two lawers has beeen put on the site of NOVA’s main homepage.
In the meeting that was hold by the two lawers in MMC in Osak, My wife heard a words from one of the lawers. He said that all of Japanese staffs in the meeting have not got any sleep in several days. What does it mean, is it means that the J-staffs have known the bankruptcy declaration several days before 26th. I feel that there are many things that we don’t know, but J-staffs know, The 70 million Yen may be paied to the J-staffs that have a high rank in the company.
4>
As for the restruction of NOVA, in my opinion it is very difficult to find a buyer on the condition that buyer has to should the lesson of ex-NOVA’s students with a free price. So the two lawers that is controlling NOVA have to suggest a more relastic condition to the buyers, such as the buyers provide lessons for ex-students of NOVA at a relative low price. But do expect lawer has excellent bargaining ability in business field.
YangChao on October 28th, 2007 5:01 am

most Japanese DO think that NOVA is no longer a valuable brand.
But do NOT expect lawer has excellent bargaining ability in business field.
J on October 28th, 2007 5:11 am

Billy Boy,

Do you know how to read balance sheets? If so, look at Nova’s prior
to all of this METI stuff. On top of that, Nova has been breaking
the law for several years. I met my wife there and the sales tactics
they used on her (and everyone else at the time)were completely illegal (94-96).
They treated the staff, teachers and students horribly. I could give you
a million examples. The staff at Nova used to clock in and out. Someone
called the gov. and told them they were working really long hours. They were working
9 30 a.m.-12 midnight. It wasn’t a lie. I saw this day in and day out for
two years. The gov. raided the schools one day, mine included and warned Nova
for it. What did they do? They had the staff Hanko in and out so there was
no proof of what time they started and ended. They continued doing that. Broke at
least 100 labor laws doing so. Like I said I could give 100 examples of things
like this that went on.

Did any students improve while I was there-yes. Did they enjoy the classes-yes.

In those days there were no refunds, period. I saw countless people trying
to get their money back arguing with staff members.

You can deny it all that if
you want. The fact is that Nova is NOT going to make it. If the “brand” were so
was so strong then it would have made it. We have been telling you on
this post that they were going to go bankrupt for
a couple of months. It would be wise to get on your pony and find a
new job ASAP especially since you have LOTS of competition.

Ronnie V,

I see what you are saying and couldn’t agree more.
Ken Worsley on October 28th, 2007 11:52 am

What exactly were the specific laws broken ? (sic)

The several laws already mentioned by posters here, as well as more:

http://www.asahi.com/national/update/1028/OSK200710270100.html
http://www.yomiuri.co.jp/dy/national/20071028TDY02309.htm

The list of laws broken is going to get longer and longer…
Ron Vanden on October 28th, 2007 2:34 pm

YangChao,

Thanks for the good and valuable points you made about possible skulduggery on the part of Saruhashi, Lundqvist et al. From my familiarity at first hand with how the company operated I would not be surprised at all that such a coordinated game was being played by the top dogs. The fact that Lundqvist has been at Saruhashi’s side for at least the past 26 years should not be forgotten.

I was also at that evening meeting in Osaka on the 26th and heard the same thing being said about not sleeping for so long. It doesn’t add up if the whole thing was so sudden. It’s not certain at this point of course but I for one could easily imagine that the dramatic and quick ending was choreographed. The timing of 70 million Yen being transferred, followed immediately by a decision to go to the courts to shut the thing down merits investigation. And the reason given to: 1) fire Saruhashi and 2) immediately file for protection under the Corporate Rehabilitation Law was that Saruhashi couldn’t be found? Laughable given that he NORMALLY couldn’t be found and had been negotiating with various parties about capital injections for months prior to the 26th. Why was this reasoning decisive on the 26th of October but on no other date?? Does anybody know the specifics, the mechanics of JASDAQ money transfer and registration procedures? It might be a fruitful line of investigation…
Joe on October 29th, 2007 12:13 am

Back to the teachers: I just noticed a company, “Teach English First,” offering to help relocate Nova teachers to new jobs in China (including paid airfare). This is being shown in the sidebar ads for members of the Japan network on Facebook. I wonder if other companies will try something like this.
Ken Worsley on October 29th, 2007 12:40 am

Ron,

The timing has me thinking as well. I wonder if they had to wait until Saruhashi reduced his stake in the company to less than 50% (or some other figure) to push him out. Sure, lots of shares had been loaned out, but I was under the impression that he still held over 50%. If he sold more than 5%, he has to report the sale via EdiNET (https://info.edinet.go.jp/EdiHtml/main.htm) within five days, according to the FSA notification I have from back in March. There’s nothing there yet…
WG on October 29th, 2007 2:28 am

“Teach English First”…Would that be these guys: http://www.englishfirst.com/trt/

Don’t know anything about them but the website says “No.”
Smithers on October 29th, 2007 10:06 am

According to my AAM a week or so before Nova went bust the 70 million yen for the stock warrant rights had already been transferred shortly after the news about the stock warrant sale broke. He said some of this money had been used to pay outstanding salary payments from August (I don`t know whose). We were waiting for the possible 6.4 billion yen on 24th/25th of October not this 70 million yen payment. I don`t know how true this is - I haven`t seen confirmation of it anywhere else. But maybe it makes the conspiracy theories less likely. Maybe people were losing sleep approaching the 25th because they knew this was the crunch day. With the shares at only 30 yen the stock warrant sale itself couldn`t go ahead. Certainly the instructors at my school knew this was the crunch day - without the 6.4 billion yen we couldn`t possibly be getting paid. Even if we did get paid we knew the Nova brand was fatally damaged and would have looked for other jobs anyway. Sahashi would have to have come up with a very, very, very convincing explanation of where he was going to get the money to keep the company going on Friday without the stock warrant sale.

Having said that, some kind of skulduggery is extremely possible. With the news of Nishida`s arrest it`s possible that the directors who launched the coup realized that they had to distance themselves from this way of raising money even if they had previously agreed to it. Would they really have let Sahashi go about raising the money all by himself. ?

What do you make of Sahashi`s final fax on the night of 25th? I didn`t see this fax as sadly I wasn`t working that day, but I gather the gist of it was that all the salary problems would be solved the next day. Was Sahashi aware that a coup was about to occur? Was this a last petulant stab at the employees he felt had let him down?

Your thoughts guys!
Pellegrini on October 29th, 2007 11:20 am

I know we talked about this a long time ago, but this post over
at the Yomiuri delineates just how imbedded in the government
Saruhashi was:

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

Summary:
Saruhashi was a director of a foreign ministry foundation to
which he donated at least 100 million yen of NOVA’s cash. The
donations were designed to look like business transactions,
and they were used to pay for ministry officials’ entertainment
expenses (among other things).

One of NOVA’s top guys at NOVA remarked that “Sahashi seemed
to employ the foundation as an instrument to
enhance his authority as well as to form relationships with
politicians.”

This is evidence of why the government failed to go
after Saruhashi for so long. He was basically lining the
government’s pockets at his own company’s expense.

Not that anyone on here will be very surprised to hear that.
G-Unit on October 29th, 2007 2:17 pm

I just saw sahashi coming out of a 7 and i- holdings in shinsaibashi! he’s alive i tell ya.
Pellegrini on October 29th, 2007 9:18 pm

“The list of laws broken is going to get
longer and longer…”

Good call, Ken.
Wages on November 2nd, 2007 5:11 am

It looks like your Billy Shears guy is a poster known as ‘Overnova’ or ‘The Worm’ on Let’s Japan. The guy has the same weird punctuation, always puts a space before question marks - no one does that. He seems very ignorant of what’s actually going on and is either taking the piss relentlessly or might just be totally clueless.

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Nova’s President Saruhashi ousted; Nova files for bankruptcy protection with 43.9 billion yen in liabilities

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