Nova's Liabilities Underestimated

Uh-oh! Nova's liabilities may be larger than initially thought. According to the Asahi Shimbun (article at the bottom of the page), Nova's liabilities could swell to 70 billion yen from the 40 billion yen initially reported. This is because of Nova's accounting methods that listed only a portion of the lesson fees paid up front as a liability.

When students signed a contract, 45% of its value was entered as revenue with the remaining 55% entered in the books as a liability. This wouldn't have been a problem if students were able to take lessons when they wanted to, but if they were to be unable to take lessons as planned, the portion of the lesson fees listed as revenue would have to be revised and listed as a liability.

Before Nova applied for protection under the Corporate Rehabilitation Law, it was swamped with contract cancellations. It's money troubles worsened when teachers stopped showing up for work and schools were closed. It is likely that the money entered in the books as revenue will end up being calculated as a liability.

The article goes on to say that if Nova can find a receiver, the paid lesson fees could be used to continue the business. However, the receiver would assume responsibility for paying salaries and rents, which makes bailing out Nova an unattractive proposition. With AEON, Marui, and Rakuten already saying that they are not interested in Nova, the odds of Nova filing for bankruptcy are high.

Ken Worsley doesn't seem upbeat on Nova's prospects, either:

"If Nova finds a backer, I doubt that they would assume responsibility for Nova's unpaid wages," warned Worsley. "Assuming responsibility for this cost is not a requirement of the trustees who have been appointed to find a buyer for Nova. It is quite possible that a buyer could decide to terminate all existing employment and re-hire a crew of teachers, though there are of course costs associated in doing this."

This would allow the new firm to re-hire an entire workforce at entry-level wages, so that former Nova teachers might find themselves having to take a pay cut to get their old jobs back, for lack of any other opportunities. The negative effect this would have on wages throughout the industry is easy to imagine.

The head of METI, saying that it's Nova's responsibility, not the government's, to find a receiver for the company, and that if push comes to shove, he'd like everybody to cooperate and see that the students are accepted by other language schools.

A Nikkei article picks up where Ken Worsley leaves off suggesting that Nova was insolvent as early as June due to some suspicious accounting. Here's a translation of the short article:

Nova suspected of improper accounting and may have been insolvent in June

It was learned that English school operator Nova, which has filed for protection under the Corporate Rehabilitation Law may have been insolvent at the end of June. In reporting results for the April to June period this year, only a portion of the money for the repayment of refunds was reported. This fact was pointed out by auditors and said to have been known by Nova's accountants. Since the reporting of business results is mandatory under the rules of the stock market, Nova's results are considered to be official under the law. Nova's actions have come under scrutiny as after it released its first quarter results, it announced the issue of equity warrants for 200 million new shares.

Original article

ＮＯＶＡ、6月時点で債務超過か・解約払戻金、不適切処理の疑い(2007/10/30 07:00)

会社更生法の適用を申請した英会話学校最大手のＮＯＶＡが、2007年6月末時点で債務超過に陥っていた疑いが強いことが29日分かった。同年4―6月期の業績開示で本来計上すべき解約払戻金を一部しか計上しなかった。同社はこの事実を監査法人に指摘され、財務担当役員も認識していたとみられる。

四半期業績開示は証券取引所のルールとして義務付けられたもので、法律上の正式な決算ではない。ただ、ＮＯＶＡはこの4―6月期業績の開示後に2億株分の新株予約権の発行を決めており、業績開示に対する同社の姿勢が問われそうだ。

At this stage, it seems the best teachers can hope for is 80% of their salaries:

The Osaka Labor Bureau will ask Nova Corp.'s caretaker administrators to confirm the home addresses of those foreign instructors who return to their home countries without receiving wages from the English conversation school chain and be responsible for paying them, the bureau announced Monday.

The firm has failed to pay foreign instructors since September.

Since Friday, 76 foreign instructors from Nova have visited the Osaka Employment Service Center for Foreigners in Kita Ward, Osaka, where the labor bureau provides consultations. The center also has received 127 telephone inquiries mostly about the unpaid wages from those concerned about whether they will receive wages after they return to their home countries.

If the Corporate Rehabilitation Law is applied to the firm, workers will have the right to receive their wages. Even if the firm goes bankrupt, the law ensures the government will pay 80 percent of the employees' wages and retirement allowances on behalf of the firm.

ＮＯＶＡ負債膨らむ恐れ　前払い受講料７００億円か

会社更生法適用を申請した英会話学校大手ＮＯＶＡ（大阪市）の負債のうち、約４００億円とされている前払い受講料が、７００億円程度に膨らむ可能性があることが分かった。授業ができなくなったため、売上金として計算してきた前払いの一部を負債として計算し直す必要があるためだ。総負債額が大きく膨らむことになり、スポンサー企業探しにも影響しそうだ。

ＮＯＶＡの保全管理人は２６日の会見で「前払い受講料は４００億円を超える」と明らかにしている。さらに詳しく調べた場合、前払い受講料は６００億～７００億円に増える可能性があるという。

前払い受講料が増えるのは、ＮＯＶＡの会計処理方法に原因がある。

ＮＯＶＡは、受講生が契約時に前払いした金額のうち、４５％を売り上げとして計算。残りの５５％を前払い受講料として帳簿上の負債に入れていた。受講生が予定通り授業を受ければ問題はないが、実際に授業を受けなかった場合、一度売り上げとした金額を負債として計算し直す必要がある。

ＮＯＶＡは、会社更生法申請前から、中途解約の動きが広がっていた。さらに資金繰りの悪化で講師不足や教室閉鎖が相次いでいた。売り上げとして計算されていた金額の多くが負債になる可能性が高い。

今後、ＮＯＶＡを支援するスポンサー企業が現れて受講生との契約が続けば、前払い分を生かして授業を続ける道が残る。ただ、その場合には、スポンサー企業は教室や講師などの運営資金を負担することになり「株主がいる以上、負債が増えれば支援はますます難しくなる」（金融機関）との見方が強い。

保全管理人は、猿橋望前社長が過去に交渉した企業のほか、楽天やヤフー、流通大手のイオンに交渉をよびかける方針を明らかにしている。「今後１カ月の短期決戦」としており、支援が得られなければ破産手続きに移行する可能性が高い。