A Guide To School Mergers

Introduction

A recent and growing trend in the independent school sector is one of schools exploring the possibility of mergers with other schools. The reasons for this are many and varied but may include the following:

Operating margins are low, so pupil numbers are critical. Fixed costs are escalating and to counteract this, schools are increasing their fees. If the fees remain above inflation levels for any sustained period, this in turn could threaten pupil numbers, especially in the strained economic times in which we find ourselves. A merger should achieve higher pupil numbers and reduce costs ratios. School premises are always in need of renovation, maintenance and improvement and are a constant drain on resources. Although the Charities Act 2006 relaxed the rules slightly relating to the spending of permanent endowment (of unincorporated charities), it may still be preferable to realise the asset value of one school's property and use part of the proceeds to modernise and extend the premises and facilities in another school. The combined brand and resources of two well-known schools may be more attractive to future parents than one, and consequently will assist in the marketing. However, the governing bodies of schools contemplating a merger will need to consider the possible negatives as well as the positives when coming to a decision. Obstacles and difficulties associated with school mergers are varied and include:

The possibility of disruption, as management time required on the project can interfere with the running of both schools, and ultimately therefore, the education and welfare of the pupils. The anxiety which a merger can bring about. Pupils and parents may lose confidence in the prospects for the merged school and may consider moving to another school. The damage a merger can bring to a brand, especially if the merger does not go ahead. Incompatibility of the specific charitable objects of each school. The possibility of a culture clash between the two schools in question and the difficulty in dovetailing the different ways in which the schools are run, and the parents to whom they appeal. The almost certain need to reduce staff levels as a result of the merger. Objections of third parties (other than the immediate stakeholders, being pupils, parents and staff). Professional and other costs. Implementation

There are various reasons for choosing a particular method to implement a merger but it is usually driven by the structure of the two entities involved (ie whether or not they are incorporated) and whether any liabilities may arise as a consequence of the merger. The merger will usually be achieved by one of the following methods and which one will be the most appropriate will largely depend on the factors mentioned above:

school A transferring its undertaking (ie the business of running the school), assets and liabilities to school B, or vice versa; or school A and school B both transferring their undertaking, assets and liabilities to a newly established charitable company ("Newco"). (This is sometimes regarded as preferable to the first option, as a means to avoid the perception that one school is taking over the other); or school A being appointed as trustee (or sole corporate member) of school B or vice versa. As you may be aware, the Charities Act 2006 introduced a new legal entity, the charitable incorporated organisation ("CIO") which may become increasingly relevant in mergers. A CIO will have a legal personality of its own, like a company, but will only need to be registered with the Charity Commission (and not Companies House). However, secondary legislation is required before CIOs will be available. After a consultation on the draft secondary legislation took place in 2009, the Office for Civil Society has had to revisit and substantially revise its proposed first draft. At the time of writing this guide the final form of the legislation has not yet been published and is not now expected before the end of 2012.

It is widely believed that the CIO structure will be a watered down version of the original vision and at least initially won't be a suitable form for larger more complex charities. It is also believed that conversion to a CIO from an existing charitable entity will not be initially possible, as this will require further secondary legislation in the future. The...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT