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Education e-briefing – Further Consultation on the Forthcoming Insolvency Regime for Further Education and Sixth Form Colleges

  • United Kingdom
  • Education - Briefings

05-01-2018

Introduction

In previous briefings we have set out details of the Government’s consultation exercise on its proposals to introduce procedures for further education and sixth form colleges which become insolvent (see our briefing 21 July 2016); the Government’s response to the consultation exercise (see our briefing 31 October 2016) and the key provisions of the Technical and Further Education Act 2017 (“the 2017 Act”) which received Royal Assent on 27 April 2017 (see our briefing 23 May 2017).

The Government has now launched a further consultation exercise seeking views on the technical detail of the insolvency regime for further education and sixth form colleges which has been set out in the 2017 Act. The consultation document has a response date of 12 February 2018 and can be found here - Insolvency regime for further education and sixth form colleges.

The consultation

The consultation states that the 2017 Act clarifies that normal insolvency procedures will apply to FE bodies in England and Wales (with modifications to be made in relation to those that are statutory corporations) and it has already set out the main parameters of the regime. Therefore the latest consultation exercise is about how the regime is implemented in practice within these parameters.

The insolvency regime will apply to colleges in England and Wales, since while education is a devolved matter for Wales, insolvency law is not, and although it was originally envisaged that the scope of the insolvency regime would only apply to further education and sixth form colleges in England, Welsh Ministers have requested that the regime should extend to colleges in Wales as well. The 2017 Act therefore gives Welsh Ministers the power to make operational decisions on whether or not to apply to the court for a special administration regime to be ordered for an insolvent college in Wales. In England this power will rest with the Secretary of State.

The consultation goes on to say that the Government is preparing draft secondary legislation to implement the 2017 Act and bring the insolvency regime fully into force. The Government currently anticipates requiring secondary legislation covering three areas as follows:

• Regulations modifying existing insolvency legislation and relevant insolvency–related legislation to apply it to FE and sixth form colleges which are statutory corporations;

• A set of rules for education administration;

• Regulations to enable the filing of records in relation to insolvent college corporations at Companies House.

On the first of these points, the consultation asks whether there are any specific modifications required in order to apply the normal insolvency procedures (Company Voluntary Arrangement, administration, creditors’ voluntary winding up, winding up by the court and receivership) effectively to FE bodies.

On the subject of education administration, the consultation states that the education administrator must be a licensed insolvency practitioner (though will not necessarily be an expert in the further education sector) and that the Government intends to carry out a procurement exercise to create a “pre-approved” panel of insolvency practitioners who can be proposed as education administrators.

In relation to filing records at Companies House, the Government says it is not the intention to require college corporations to register with Companies House or to routinely file documents with them, but these filing requirements would apply to insolvent FE bodies and commence as part of an insolvency procedure.

Governor liabilities and disqualification

The Government points out that it previously consulted on whether or not to apply the provisions of the Company Directors Disqualification Act 1986 (‘the CDDA’) to FE bodies that become insolvent and, having concluded that this was appropriate, the 2017 Act modifies the CDDA to this effect. This will mean that, once the relevant provisions of the 2017 Act are brought into force, governors of further education and sixth form colleges can be disqualified from acting as such in the future and from being company directors. Furthermore, persons disqualified as a director of a company would be prohibited from acting as a member of a further education body which is a statutory corporation.

The Government notes that college governors already have fiduciary duties in their capacity as charity trustees to do everything within their power to ensure that the college corporation which they serve remains solvent and states that the disqualification regime is intended to ensure that FE bodies are run in a financially prudent way to protect creditors, staff and students, as well as taxpayers’ money.

According to the Government, “the availability of disqualification should not inhibit people from taking up such positions, but it does act as a deterrent to poor management”. It also comments that company directors are not disqualified under the CDDA as an automatic consequence of the insolvency of a company, and that disqualification proceedings are only commenced where there is evidence of wrongdoing, and an individual’s explanation of the situation should always be sought in any investigation.

As a result of the wording of the 2017 Act, secondary legislation is not required in order to apply the disqualification provisions of the CDDA to governors. However, in the Government’s response to the previous consultation exercise, it agreed to provide guidance for governors on their duties and liabilities under insolvency law, and the Government has stated that it will work with key stakeholders to ensure that this is provided ahead of the insolvency regime coming into force. In the current consultation the Government therefore asks what particular aspects or issues the guidance for governors should cover.

Next steps

The results of the consultation and the response from the Department for Education will be published in Spring 2018 and the Government’s goal is to have the necessary legislation in force to allow the regime to be in place in late 2018.

We will provide an update once there are any further developments.

For more information contact

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