Need to know: The new college insolvency regime

Around 100 colleges could be at risk of insolvency, the government has estimated

insolvency college funding FE commissioner AoC

Later this month, the new insolvency regime for further education and sixth-form colleges will come into force. Here is what you need to know.

What is it?

This insolvency regime was introduced to provide what the government calls “orderly winding-up and other insolvency proceedings in the unlikely event of a further education or sixth-form college becoming insolvent”. The aim is to protect a public service while creating an orderly process to deal with a situation where the organisation providing that service has run out of money.

Why is it being introduced?

Further education and sixth-form college corporations in England and Wales and sixth-form college corporations in England were not covered by existing normal insolvency law. Following the area review process, the government has provided higher levels of support for complex mergers via restructuring loans – an estimated £300 million have been committed by 31 March 2019. 

Who will it affect? 

The government’s response to the consultation on the new regime for colleges, published in June, estimated that over the next 10 years, 63 colleges could be given a notice to improve for their financial health, in addition to the 37 current subject to a notice.

How will it work?

Provisions are similar to companies and other organisations in the UK

What happens if a college gets into financial trouble?

The new college insolvency regime will supplement the existing intervention regime run by Education and Skills Funding Agency and the FE commissioner. That means there will be several lines of control in place:

- Governing bodies, who have a duty to ensure the solvency and viability of colleges

- The Education and Skills Funding Agency with financial oversight

- FE commissioner, who intervenes where the college has a notice to improve

- Independent Business Review: a new pre-statutory process that will apply for colleges in severe financial distress

And what if a college does become insolvent?

A formal legal insolvency process akin to commercial insolvency will take place, meaning a court approves the appointment of an administrator, liquidator or receiver depending on the circumstances.

The Department for Education then has 14 days to step in and suspend these processes by appointing an education administrator, who would have a duty to avoid and minimize disruption to students as well as to secure the best outcome for learners.

What happens to students if a college becomes insolvent? 

The Technical and Further Education Act 2017 (‘the 2017 Act’) also introduced a special administration regime for the college sector, known as an education administration, which protects learner provision for existing students at insolvent colleges.

When does it come into force?

The new insolvency regime will come into force on 31 January 2019.

Are there unintended consequences from the new regime? According to the Association of Colleges, one by-product of the insolvency law is a reduction in new lending to colleges, reducing their ability to invest in new facilities.

What information is there?

The government promised two pieces of guidance before the launch of the new regime. One, for college governors, was published in November, with the second expected over the coming weeks.

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