Debt-wracked college settles legal wrangle

10th November 1995 at 00:00
If there can be a victor in a truce, then Coventry Technical College must surely claim the title in the settlement of its dispute with the city council.

A week ago, the college had a Pounds 6.7 million debt on its books, and faced possible bankruptcy and closure had it been forced to pay the price for pre-incorporation over-spending.

Today, it owes the council just Pounds 1 million, payable over 15 years if it cannot meet the official 10-year deadline. It must also hand over a car park and assorted chunks of land, together worth a further Pounds 500, 000.

Meanwhile, college finances have otherwise stabilised enough to create a small surplus, reinforcing principal Janey Rees's memorable statement earlier this year that:"We do not have any money problems, except this miserable Pounds 6.25 million deficit."

The council is putting a brave face on events, and both sides' official line on the deal is "tough but fair", but it is college managers who can barely stop smiling. They privately recognise things could have been far worse - certainly few onlookers in the sector would have anticipated a settlement in which the college ended up obliged to find less than Pounds 70,000 a year.

As the wrangle developed, with the council suing the college for repayment, the city of Coventry found itself neck-deep in waters still uncharted since incorporation in 1993. The framing of legislation removing colleges from council control left the question of liability for previously acquired debts open to different legal interpretations, as both parties discovered.

Contradictory legal views also emerged over the implications of the college becoming insolvent if the debt were enforced, and over whether the Further Education Funding Council would then be liable for the money owed. The uncertainty prompted the city council's lawyers to advise their client to settle.

Realistically, the authority knew it would have little chance of recovering all the money whatever the outcome of legal action. Even if it won, a financial report published last year by accountants KPMG Peat Marwick had warned that enforced repayment would leave the college insolvent and probably unable to cover the debt anyway. If the council lost in court, it would have to write off the whole of the Pounds 6.7 million, and meet substantial legal costs.

During three years of negotiations, both sides pressed the Department for Education and the FEFC, also in Coventry, for support. But FEFC chief executive Sir William Stubbs and the former further and higher education minister Tim Boswell refused to intervene.

Eventually, aware that the college's counsel had advised fighting the case, the city council settled, thereby ending up "in purgatory but not in hell, " according to one insider. Reserves will be used to write off the remaining Pounds 5.4 million deficit, and Coventry taxpayers are being assured their services, including schools, will not suffer cuts.

Even so, local voices are now demanding to know why no one is apparently being made to carry the can for the deficit. But here too the council's advice suggests legal action would prove unsuccessful against those in the previous management regime, mostly axed in a major cost-saving shake-up once the extent of the deficit became clear in 1991.

For the college, coping with continuing uncertainty just when funding pressures were hitting hardest throughout the sector, the settlement - awaiting only a final rubber stamp from the FEFC - represents long-awaited freedom to plan for the future.

"The first year I was here we were living from day to day, then month to month, then with incorporation we were always asking what our accounts were going to look like," said Mrs Rees. "Now we can actually say where are we going to be in the next five years."

The deal should also lift the stigma that inevitably attaches itself to an institution in trouble - the local press headline "Calamity College" is etched in the memory of Coventry Tech staff. Even in such a climate, where parents would phone in enrolment week to ask whether the college would be around at the year's end, growth targets were exceeded by almost 13 per cent in the first year of incorporation. "We have done bloody well," pronounced Mrs Rees, handing leaflets to staff proclaiming the good news this week.

Both college and council say there will be only goodwill in their future relationship, which they insist has remained amicable throughout the dispute. Coventry councillor Nick Nolan said: "Coventry has a reputation for engineering and technical skills and it all happens in the college. This is one of our great resources and we are not going to lose it."

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