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Financial challenges within the education sector begin to bite

Tim Brock, qualified accountant and restructuring professional at Mitchell Charlesworth, provides an update on the new college insolvency regime.

As discussed in my previous article, a new insolvency regime known as ‘education administration’ has been introduced to further education colleges and sixth form colleges.

The process is designed to minimise disruption to existing students should a college become insolvent and exposes management and governors to investigation and personal liability in the event of financial failure.

Education administration has already begun to take effect. West Kent and Ashford College entered administration in August with the Education and Skills Funding Agency (ESFA) investigating potential financial irregularities prior to the appointment.

In July the Further Education Commissioner (FEC) reported that St Helens College was at high risk of insolvency following its merger with Knowsley College to form SK Colleges Group. The report stated that the college went ahead with the 2017 merger while “being aware that major assumptions on which the financial plans were based on were incorrect”.

The FEC concluded that without action being taken to improve the financial position, the college is at high risk of insolvency and the board’s required actions to address the position had not been sufficiently timely or effective.

The FEC recommended the board prepare a recovery plan and five-year financial forecast to set out how a sustainable financial position will be achieved.

A team from the FEC will return to the college to consider the recovery strategy prepared.

With ever increasing challenges within the sector it is essential that management and boards are vigilant in managing their financial position and seek advice early to minimise the risk of financial failure and insolvency arising.

If you would like further information on the new college insolvency regime, please contact Tim Brock below.