In the first quarter of this year, 451 businesses went into administration. If you include liquidations and creditors' voluntary arrangements the number rises above 4,000. Most of these will go relatively unnoticed, even though the impact on the owners, staff, creditors and customers might be profound. The reasons will vary, but it’s clear for most that rising costs, weak markets and uncertainty about Brexit are important drivers. Sometimes poor leadership and scandal lie behind the numbers.
From the thousands, a few administrations and business failures hit the headlines. We know that from the recent experiences of Carillion, Learndirect, 3AAA to name but a few. They hit the headlines for varying reasons – sometimes it is about the scale of the failure, others about the allegedly illegal actions, often because of the impact on customers, creditors and staff. Sometimes they hit headlines because, sadly, the media seems to like failure.
The news today that Department for Education has petitioned the High Court to place Hadlow College into education administration should be placed in that context. Sadly, I am sure that the impact in the medium to long term will be profound. As a sector we will be talking about this for years to come.
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In the short term, though, I am also clear that there will be very little, if any, disruption. The education administrator has a legal duty to place the interests of current and enrolled students first, above all else. That is critical and helpful. It means that strong assurances can be given to students and all the staff at the college, the latter being essential to the former's continued studies.
The medium and long term will depend on many factors and it’s worth emphasising that nobody really knows how it might pan out. This is the first ever use of very new legislation, so in many ways it is a high-risk approach for the DfE to use this route now.
From discussions with the minister and officials, I am convinced that the intentions are good – this route is being taken with the best interests of existing students and staff as well those of the community and the sector. The DfE will strive for a good outcome from this to show that they are committed to colleges and to continued opportunities for the people in this part of Kent. There is no hint even that this is being used to "look tough" or to "send a message to other colleges"; we may in hindsight regret the route taken, but I will not question the integrity of the people making the decision. They want to make this work; I hope that it does.
Making it work requires rapid progress on securing the short- and long-term future for the college, its students, its specialisms and the opportunities it offers to its communities. Here’s my list of areas of impact with some thoughts on what might happen.
'Educational progress must not suffer'
For current students I am sure that the staff at Hadlow will work even harder than before to maintain their focus on studies and exams. Their educational progress must not suffer, and I am confident it won’t. More worryingly, there is likely to be more of an impact on those planning to enrol in the college for the next academic year. Speedy assurance from the education administrator and all partner agencies will be needed to give them confidence to start their studies at the college in the autumn.
For staff this will be extremely worrying. Their morale and loyalty will be severely tested, and it will be a challenge for the college to retain the very people who made Hadlow an "outstanding" college and who work so hard to maintain that. They will face personal dilemmas, with their loyalty being balanced against the need to have certainty about their future jobs and livelihoods. Getting a rapid solution will be vital for them.
There will be some impact at least on the reputation of colleges locally (with students, parents and employers) and nationally, with the DfE, Education and Skills Funding Agency, the Treasury and others. In part, this will be mediated by the speed of response, how quickly a solution is found and about the way partners and the media spin the story. AoC will work as hard as we can to calm the nerves, and to put this in the context of a sector which has high standards of leadership, governance and good practice. I hope that others support that line because it is true and will help in reaching a positive outcome.
'Hadlow College is an exception'
I worry also about the impact on the confidence of leaders and governors in other colleges, all of whom are facing without any doubt the hardest financial stress colleges have ever faced. I spend a lot of time with college leaders and governors and attending and engaging with college boards. My experience overwhelmingly is that colleges are acutely aware of their responsibilities, of the risks, of good practice, of how to be the stewards of what is a vital part of every community’s public infrastructure. I want to reassure the thousands of people who volunteer, as well as the hundreds of senior leaders, that if they do the right thing and carry on working hard, that insolvency is a very unlikely outcome. Hadlow College is an exception and very unusual in all sorts of ways.
Perhaps the biggest unknown is how this might impact on the behaviours of the banks, local government pension funds and other suppliers. If the education administration works well it will provide clarity for all those institutions to be able to better assess the risks of supplying and working with a college. Those risks are understood in the commercial world, but in colleges this experience will essentially set the risk levels for all colleges, possibly for years to come.
That’s why the DfE needs to make sure it works well – for students, staff, communities and suppliers – because it has become the test case that everyone will look at when considering their view of the risks of learning at, working for, and supplying all colleges. That’s a key part of why this is such a high-risk approach.
Lessons from 'the Hadlow case'
The use of insolvency also raises tricky questions for DfE and ESFA. It’s likely that the investigations into what has happened at Hadlow will reveal problems that go back over a number of years and which went unnoticed by the extensive regulatory regime which colleges work under. That must be a worry to the government and I hope will result in a thorough, transparent and positive review of regulation to see how the regime can be streamlined, simplified and improved. I hope that DfE can undertake that review with us at AoC and with college leaders and governors, once Hadlow has been resolved, in a calm and open manner.
At the moment, any one college might be subject to oversight and regulation from the DfE, ESFA, the FE commissioner, Office for Students, mayoral authorities, the EU, internal and external auditors, awarding organisations, banks, pension funds, the Home Office and probably some others. To say that looks confusing is an understatement – to believe that we could improve on it is obvious.
What has already been exposed about Hadlow shows that there have been some highly unusual practices and behaviours which are incredibly uncommon in the college sector. It is an exceptional case and I hope that this process will protect students, staff, future opportunities and creditors and that a solution is reached rapidly.
I am committed to making sure that we get the chance to learn lessons from what will inevitably become “the Hadlow case” – all of us will need to reflect and help ensure that it is not only the first ever insolvency, but also the last.
David Hughes is chief executive of the Association of Colleges