Sheffield Crown Court ruled that David Eade, the former principal of Barnsley College, was too ill to defend himself in court.
He left the college in 2001 on the grounds of "incapacity to undertake the duties of the post" and continued to suffer poor health afterwards.
Police say the charges of conspiracy to defraud will now "lie on file".
David Jones, head of communications at the Serious Fraud Office, said: "If at any time in the future we wish to bring a prosecution, we could do so, if it was in the public interest."
Stuart Spacey, a former lecturer at the college, is still expected to stand trial on November 13.
The trial is the culmination of a five-year investigation into revenue-raising companies at Barnsley College.
Mr Spacey was company secretary of Barnsley College Holdings, a charitable company, and its subsidiary Progress Training, which went into liquidation in 2001. Police alleged that Mr Spacey and Mr Eade used false invoices to claim payments for work that was never carried out.