Shanghai Busts 'Professional Closure Operators' in Scheme Targeting Prepaid Tuition

Shanghai police have uncovered a contract fraud scheme involving "professional closure operators," in which suspects took control of three education and training institutions, created the false appearance of financial distress, and siphoned off well over 1 million yuan (US$143,000) from parents and the institutions' original controllers.

"Professional closure operators" are intermediaries hired to help financially struggling businesses plan closures and exit the market. They also take over the handling of follow-up disputes and claims from customers and creditors.

Their involvement has drawn controversy because they assist businesses in shedding liabilities and avoiding legal accountability, with changes in ownership or control often used as a routine tactic.

To increase profits, many such operators run discount promotions shortly before shutting down a business, collecting a final round of prepayments before disappearing.

Industries that rely heavily on prepaid fees, such as education and training, beauty and hair services, and fitness centers, have become the primary sectors in which professional closure operators operate.

A Shanghai resident named Xiao reported the case to the Shanghai police in June. She claimed that a children's art training center, where she had purchased classes, had abruptly shut down and that its actual controller could no longer be reached.

Xiao said she signed a contract with the center in April, paying 21,250 yuan for a package of 150 classes. Soon after, scheduled outdoor sketching sessions were canceled, staff began leaving, and one-on-one lessons were consolidated into large group classes.

The center shut down in June, leaving her with losses exceeding 20,000 yuan.

Police investigators found that the training center was linked to a woman surnamed Gu and a man surnamed Han, and further identified other education and training institutions associated with them that were facing closure risks.

Gu and Han began engaging in education-sector closure in October 2023. Market regulators penalized Han in August 2024 for irregular professional closure practices, but the pair continued their activities.

Beginning in December last year, Gu and Han gained control of three institutions by exaggerating their credentials. The schools were operating normally and had stable enrollment, but their original owners sought transfers for personal reasons and hoped the institutions would continue operating. The owners paid the suspects altogether more than 400,000 yuan in transfer fees.

After taking control, Gu and Han concealed the change in actual control while continuing to market courses and collect prepaid tuition.

They also forced employees out by cutting salaries and delaying payments, deliberately creating the appearance of unsustainable operations before shutting down the institutions and cutting off contact.

By the time the case was uncovered, more than 1 million yuan in transfer fees and prepaid tuition had been illegally appropriated and used to repay personal debts and support high personal spending. Deprived of operating funds, all three institutions were forced to shut down.

By then, the schools' legal representatives and nominal shareholders had already been replaced with individuals who lacked both industry experience and the financial capacity to repay debt.

Zheng Weirong, an officer involved in the investigation, said using individuals without real repayment capacity to assume debt and evade civil liability is a common tactic among professional closure operators.

What distinguished this case was that the institutions involved were not financially distressed and that their original owners had been willing to pay substantial fees to ensure continued operations.

Gu and Han have been transferred to prosecutors on suspicion of contract fraud. The case remains under investigation.

The case forms part of Shanghai police's wider crackdown on economic crime. Over the past year, police in the city have solved more than 2,100 such cases, recovering over 2.8 billion yuan in losses.

Police have also stepped up preventive efforts, shifting from a largely reactive approach to more proactive engagement with businesses. Through the "Blue Whale" enterprise service stations, officers visited more than 1,100 companies over the year, gathered over 1,000 business requests, and worked to resolve them individually.