The Insolvency Regime – Prevention Is Better Than Cure
A common view shared by providers of finance, even after Incorporation in 1992, has been that colleges are ultimately government-backed.
This has always served to smooth the way for the big banks to oil the wheels of the Sector and has led to the £1.5 billion of outside finance that is currently enjoyed by colleges.
This could all change when the Government’s planned Insolvency Regime comes into force from 31st January 2018.
Banks Taking Defensive Action
The three major banks involved in the Sector have already begun to take defensive action.
Colleges are now beginning to feel the brunt of this, with banks seeking security for loans and having less of an appetite to lend and requiring more expensive rates.
Is a further layer of intervention really necessary? We have the ESFA, ESFA Intervention Team, FE Commissioner’s Team and currently the Transactions Unit, for some colleges.
Surely this degree of scrutiny should be sufficient to identify early any potential problem colleges? Whilst the recent decision for the FE Commissioner to engage in early-warning diagnostic visits is to be applauded, please let’s not add another layer!
Also, if the choice of the emotive word “insolvency” was intended to scare colleges into action, might I suggest that instead there is more than a suggestion that it has spooked the entirely the wrong crowd, namely the banks.
Education Very Different to Private Sector
The Government have stated that the new regime will be based on the one applicable to an insolvent company in the private sector.
Drawing on experience in both sectors, it is my view that colleges are NOT LIKE companies in the private sector! They are undoubtedly very different!
The Government have also stated that their prime concern will be to safeguard the interests of learners. This is, of course, to be applauded.
But if a college is placed into Education Administration, the skills of the Education Administrator need to be very different from those of a Receiver, or Administrator in the private sector.
Colleges do not deal in assets and liabilities alone, but also with people’s lives and careers. Education Administrators must therefore have sector experience as an essential feature on their CV.
Independent Business Reviews
The Government have also stated that Independent Business Reviews (IBRs) will feature in the new regime. Colleges, especially in recent years, acknowledge that these are useful in theory, but feel that in practice, they are very expensive and often, due to a lack of appreciation of the FE Sector in those undertaking them, miss the key points that should be identified.
One college Principal who discussed with an IBR team the intention to review the College’s Curriculum Plan was told “let’s not worry about the curriculum, let’s sort out the business first!” In a college, the curriculum IS the business!
Faced with the threat of the new regime, colleges in future may decide to take steps to preserve cash. This could result in a negative impact on the learner experience due to lack of investment in a college’s infrastructure and classroom resourcing.
Whilst from a bottom-line point of view this would work, from an educational point of view it would be undesirable.
Realistic Funding Would Be Better
Despite various flavours of the day that have come and gone, some things have remained constant. It has always been the case that colleges get into financial difficulty because they spend more than they earn. It is as simple as that.
This situation arises due to two major factors:
- Aspirational, i.e. unrealistic income targets that cannot be achieved and
- Poor or no control over staffing costs.
What is needed for colleges to remain distant from the clutches of the Insolvency Regime and all the other regulators in the sector, is a robust, structured and inclusive income/costs planning process followed up by regular internal monitoring and corrective actions.
If the Government really want to prevent colleges getting into financial trouble, instead of the Insolvency Regime, they might consider funding colleges at a more realistic level.
As always, prevention rather than cure will continue to be the best way forward!
Malcolm Cooper, MD, MCA Cooper Associates
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