First ever education administration order for insolvent college

Rebecca Wyke and Simon Hough, in our Insolvency team, examine the High Court’s decision in Secretary of State for Education v Corporation of Hadlow College to make an education administration order in respect of the respondent further education corporation, which was cash flow insolvent.

The Case

Secretary of State for Education v Corporation of Hadlow College [2019] EWHC 2035 (Ch), [2019] All ER (D) 164 (May)

The Secretary of State for Education successfully applied for an education administration order (EAO) to be made in respect of Hadlow College in Kent, the first such order to be made under new powers which came into force in January 2019.

The Law

The special administration regime for further education and sixth form bodies was introduced by the Technical and Further Education Act 2017, Part 2, Chapter 4 (the “Act“) and came into force on 31 January 2019. The Act applies aspects of corporate insolvency law to certain further education bodies and created a power for the court to make an education administration order (“EAO“), the objectives of which are:

1. To avoid or minimise disruption to the studies of the existing students of the further education body as a whole and ensure that it becomes unnecessary for the body to remain in education administration for that purpose; and
2. To set out the means by which the Education Administrator may achieve that objective, including:

• rescuing the further education body as a going concern,
• transferring some or all of its undertaking to another body,
• keeping it going until existing students have completed their studies, or
• making arrangements for existing students to complete their studies at another institution.

For a court to make an EAO, it must be satisfied that the further education body is unable to pay its debts or is likely to become unable to pay its debts. An EAO should be considered before traditional routes of administration or liquidation under the Insolvency Act 1986.

The Facts

The Corporation of Hadlow College (the “College“) was a body corporate with approximately 2,000 students established in 1992. It applied to be placed into special administration under the new regime following a period of financial instability. The College had been in financial difficulty for some time and had required emergency government funding earlier this year following the resignation of its principal and deputy principal.

Following the College’s request, £2.8 million of emergency funding was provided by the state to allow the College breathing space to determine its financial viability. A cash flow forecast prepared by accountants at the time of the application to the court demonstrated insufficient cash reserves to enable the College to meet its liabilities as they fell due or to continue operationally beyond the week commencing 27 May 2019.

The Decision

The Secretary of State for Education’s application was heard on 22 May 2019 at the Insolvency and Companies Court, before Judge Nicholas Briggs.

Briggs J ruled that there was significant evidence that the College could not meet their debts, satisfying the required test for making an EAO, as set out in the Act. In addition he noted that there was no opposition to the application from those parties entitled under the Act to attend the hearing and no other reason was provided as to why an EAO should not be made. He therefore made the order to appoint Matthew Tait, Graham Newton and Danny Dartnaill of BDO LLP as administrators tasked with carrying out all the functions of an education special administrator.

Conclusion

Educational administration is a new route introduced for further education bodies which become insolvent allowing an administrator to take control with a mandate to prioritise the interests of existing students rather than those of creditors.

Given that recent analysis carried out by tes, previously the Times Educational Supplement, found that 1 in 7 further education colleges in England were at significant risk of not being able to meet their current financial obligations, it is likely that further, similar orders will follow. The new educational administration route could create a significant benefit for students who would otherwise be left high and dry part way through an important stage of their education.

For expert advice on any of the topics raised, speak to our team of specialist of insolvency practitioners here.

This article has been co-written by Simon Hough and Rebecca Wyke.