New Insolvency Regime For Sixth Form And Further Education Colleges

The financial pressures on sixth form and further education college funding have been steadily building for a decade or more; indeed the Institute for Fiscal Studies has noted that, as a sector, it has "experienced larger cuts in the 1990s...and is currently experiencing the largest cuts". This was reflected in the government's area reviews, carried out in 2015 under the aegis of the Education Funding Agency (EFA), which identified that 17% of FE colleges were struggling financially and were given notice to improve. That exercise also highlighted the fact that there were no statutory arrangements in place should a college become insolvent, prompting a 2016 government consultation: 'Developing an Insolvency Regime'. The resulting legislation, the Technical & Further Education Act 2017, contains insolvency provisions which are due to come into effect towards the end of 2018. These provisions were subject to a further consultation to which the government has just published its response.

What do the new insolvency provisions look like?

Normal company insolvency law will apply to sixth form and further education colleges. However, as the special objective of any insolvency arrangement will be to prioritise the learning needs of students (who take priority over creditors), a special administration regime is being introduced. This allows the Secretary of State [or Education to appoint an education administrator, along similar lines to the special administration schemes introduced to protect other public service entities (such as housing associations). An education administrator must be a licensed Insolvency Practitioner but no prior educational experience will be required on the basis that such an appointee would have access to specialist advice as and when required. The Secretary of State will have 14 days from an application for an insolvency order in which to place a college in special administration and a moratorium would remain in place throughout the entire period.

Checks and balances

The government has assumed that insolvency will be a last resort on the basis that there are already checks and balances in place to help prevent colleges reaching the point where an application for insolvency is the only route out of their financial difficulties:

Governing bodies are responsible for overseeing a college's finances on an ongoing basis: they have to approve the budget at the beginning of the year and then the final accounts at the end of the...