Learning and Skills Network goes into administration

Widespread shock as last year's #163;8.8m expansion ends in failure

It shed more than 100 members of staff and sold off millions of pounds in assets, but to no avail: last week, the Learning and Skills Network's (LSN) fall from grace became complete when it announced it had gone into administration.

The decline has been precipitous. Last year, the charity was confidently expanding, investing #163;8.8 million in acquisitions, which it expected to bring in new revenues of #163;12 million. Instead, its income halved to about #163;13 million as contracts with the Government continued to dry up. Desperate cost- cutting, with the number of staff falling from 219 last year to just 117 this year, failed to halt its decline. Even so, the speed of its failure has amazed onlookers: in March 2010 it reported reserves of #163;11.2 million, now presumably wiped out.

The financial crisis leaves the future of LSN's programmes, ranging from technology to research, in doubt. There are particular concerns for the National Extension College (NEC) - a pioneering distance-learning institution which was the precursor to the Open University - and its 20,000 students.

The NEC was taken over last year by LSN, which promised to invest and double student numbers. Instead, the college languished, and LSN sold its land in Cambridge for #163;6 million to Homerton College (pictured left). Supporters of the NEC, concerned that the sale would make the college more vulnerable but might not be enough to end LSN's financial problems, proposed a de-merger but were ignored. Now former trustees are considering legal action, arguing that the LSN board members should have disclosed more about its finances. Instead, LSN's financial stability and independence from public-sector funding was presented as a selling point at the time of the merger.

"It's the worst-case scenario for the NEC to have lost its assets and still not got financial stability," said Ros Morpeth, a former executive director of the college. "How can so much money have leached away so quickly? Just three weeks ago they got #163;6 million from Homerton. It's a shocking scandal."

Just as it ramped up its acquisitions in 2010, LSN spent 2011 letting things go. Its chief executive, John Stone, retired from the #163;160,000-a-year job in March, although both Mr Stone and the charity denied the decision was prompted by financial problems. As well as selling off the NEC land, LSN also abandoned its role in a pioneering deal to help run Reading College, in a partnership with Oxford and Cherwell Valley College. And it gave it up its involvement in the interim management company FE Associates - part of its #163;8.8 million in acquisitions - last year.

The case of FE Associates gives some indication of how optimistic LSN's business plan was. In recent years, LSN had only added about #163;2 million of new business each year. The acquisition of FE Associates, the largest of LSN's purchases, would have added its #163;7.8 million of annual sales to the balance sheet. But LSN had predicted the charity would increase its earnings by #163;12 million - a tall order.

PricewaterhouseCoopers, the administrator, said that the "dramatic decline in contract income" due to Government cutbacks and a #163;7.9 million pension deficit meant the charity's trustees had decided they could no longer continue. "There has been a marked increase in the number of financially distressed charities approaching us for advice and assistance in recent weeks and months as the spending review begins to impact those charities reliant on government support," said joint administrator and head of charity advisory Ian Oakley-Smith.

The administrator's task will be to find a buyer for some or all of LSN's five businesses: Technology for Learning; its research business; consultancy work under the banner of Development Services; the Learning and Skills Development Agency in Northern Ireland; and the NEC. "It appears there is a good deal of interest in a number of Learning and Skills Network's activities. We are hopeful they will be able to continue under different ownership," Mr Oakley-Smith said.

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