Five corporations running employment support for people with disabilities, including Osaka-based Kizuna Holdings, were declared bankrupt on November 2. Liabilities total about ¥28.9bn, making it the largest collapse of a social welfare service group on record, according to Teikoku Databank.
The bankruptcy order came from the Osaka District Court. The other four corporations are JOB connect, Leve, Revelara and the NPO Rian. About 1,500 people have reportedly been dismissed, and concern is growing over the effect on service users and frontline staff.
Behind the collapse is a scheme the group called the 36-Month Project, under which it hired disabled users at group companies and then returned them to its own welfare services.
Hired, then sent back
Employment continuity support type A (shūrō keizoku shien A-gata) centers sign employment contracts with disabled people who find it hard to hold a job at an ordinary company and provide them with work. A subsidy top-up rewards centers whose users move into ordinary employment and stay there for six months or more, and that help them settle in.
Group companies hired users of its type A centers and then sent them back to the centers. Osaka city ruled that hiring people on the premise they would return to type A services runs against the purpose of the top-up, which is meant to reward lasting moves into ordinary work. It found the group had overcounted users eligible for the top-up and certified the claims as fraudulent.
The city also took issue with the group repeatedly counting the same users over the past three years, even in cases that did not meet the exceptional conditions a municipal mayor must approve.
A person familiar with disability welfare said Osaka city certified about ¥7.9bn in fraudulent claims. With a 40 percent surcharge, the city is seeking about ¥11bn, the amount it paid out. The city has also certified about ¥15bn in fraudulent claims across two prefectures and five prefectures including other municipalities, according to reports.
“It is also necessary to examine not only whether the top-up was operated properly, but how the authorities checked these claims over such a long period.”a person familiar with disability welfare, told Shueisha Online
The group says the 36-Month Project gives users aiming for ordinary employment another chance. It disputes the city's finding that the project itself is fraudulent and filed suit at the Osaka District Court in April seeking to overturn the city's repayment order.
Osaka city announced on March 27 that it would revoke the designation of type A centers run by four of the corporations, effective May 1. On April 30 it filed a criminal complaint with Osaka prefectural police against five people, including the current and former heads of the operating corporations, on suspicion of fraud.
On June 22, Kizuna Holdings and three other stock companies applied to the Osaka District Court for civil rehabilitation under the Corporate Reorganization Act, and the NPO Rian filed for bankruptcy. The application to open rehabilitation proceedings was rejected on October 1, leading to the bankruptcy orders for all five corporations on November 2.
Kizuna Holdings was founded in 2012 and expanded into employment support and after-school day services, posting about ¥2.4bn in sales on a standalone basis in the fiscal year ended March 2023.