Insolvency regime for FE and sixth form colleges – government technical consultation

Of interest to those sitting on and advising boards of further education (FE) colleges, and insolvency practitioners, in England and Wales.

The Technical and Further Education Act 2017 (the Act) was introduced to sit alongside the government’s skills reform agenda and promote technical education in conjunction with their more high-profile apprenticeships policies. An important aspect of the Act is to develop a further education system that is high quality, sustainable and resilient. At a time when education is affected by ongoing austerity in public funding, the desire to reduce financial uncertainty is necessary, but the Act did not fully address the issue of the insolvency regime for FE colleges and sixth form colleges.

The Department for Education (DfE) launched a technical consultation in December on the insolvency regime for FE and sixth form colleges. This aims to:

  • Clarify the insolvency provisions for FE and sixth form colleges set out in the Act
  • Outline the technical details of the insolvency regime that will be covered in secondary legislation
  • Set out how colleges at risk will be dealt with in practice
  • Detail how systems will be improved in relation to monitoring and supporting FE corporations that experience financial difficulty.
The majority of the 302 FE and sixth form colleges in England and Wales are established as statutory incorporations under the Further and Higher Education Act 1992, and are exempt charities. The Act amends aspects of this legislation relating to FE body insolvency, inserting aspects of the Insolvency Act 1986 regime, with particular modifications for statutory corporations.
In particular, the consultation covers the following provisions to be addressed via secondary legislation:

  • Modification of the normal insolvency regime to apply to FE and sixth form colleges that are statutory corporations
  • The application and modification of other insolvency legislation that might need to be applied to college corporations in a similar way to companies
  • Filing insolvency records with Companies House
  • The rules and processes for the new education administration regime
  • The application and modification of the insolvency regime relevant to FE bodies especially in the context of the education administration regime.
The education administration regime introduced by the Act provides a key difference to standard insolvency arrangements. An administrator appointed under this regime will have the objective of avoiding and/or minimising the disruption to existing students at the FE body. The methods available to achieve this are: by rescuing the body and turning it into a going concern, transferring some or all of the undertakings to another institution, keeping the body going until existed students have completed their studies, or making arrangements for students to complete their studies at a different body. This means that creditors will only be able to take enforcement procedures after obtaining the court’s permission.

In addition to provisions of the insolvency regime being applied to FE bodies, the Company Directors Disqualification Act 1986 (CDDA) will explicitly apply to governors of statutory corporation FE bodies. This will not require secondary legislation, but will be implemented at the same time at the insolvency regime. The DfE is expected to provide information on the implications of the CDDA for governors before implementation.

The consultation provides the sector with the opportunity to contribute to the practical implications of a special insolvency regime for FE and sixth form colleges. The DfE expects insolvency within the sector to be exceptional and uncommon, but it is incumbent on the governing body to be aware of the changes. The potential liabilities for governors and staff, if found guilty of fraudulent or wrongful trading, should not be underestimated, as the impact can reach beyond the immediate role of the individual concerned.

The consultation can be found on the DfE’s website. The deadline for comments is 12 February 2018. 

ICSA will be submitting a response to the consultation. If you would like to contribute to the response, please send your comments to ICSA’s head of policy (not for profit) Louise Thomson before 11 February 2018. 

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