The UK’s independent schools have incurred significant financial pressure as a result of the COVID-19 pandemic. Most independent schools were forced to reduce fees when pupils were sent home but still incurred the full cost of teaching staff who were continuing to provide lessons online. The pressure was further exacerbated by the inability to generate supplemental income from events held at the school’s premises and the increasing reluctance of parents to take the financial risk of choosing private education for their children.
These pressures have already led to several high-profile closures including St Mary’s Shaftesbury and Ashdown House, Boris Johnson’s former prep school. In May 2020 the Times Educational Supplement forecast that as many as 30% of UK’s private schools could face insolvency in the near future.
Independent schools are traditionally operated as registered charities but may also be trusts, unincorporated associations or companies. Indeed, in recent years an increasing number of business enterprises with an openly capitalist ethos have entered the market, adding to the pressures on the traditionally run schools.
The application of the Insolvency Act 1986 will depend upon the type of organisation but the law dictating the conduct of the directors or charitable trustees are broadly the same and the individuals with those positions should be aware of their responsibilities.
The Governors (or directors) must exercise independent judgement and act with reasonable care, skill and diligence.
Options for schools
If a school is facing insolvency, either on a cashflow basis (where it cannot pay its debts as they fall due) or a balance sheet basis –where it is in a net liabilities position– the school’s Governors or directors should be proactive in seeking advice from insolvency professionals who may:
- Offer guidance on potential mergers in the market
- Assist Governors in understanding their responsibilities
- Negotiate with creditors and suppliers
- Discuss alternative funding solutions
- Prepare an options paper for the Governors to consider
- Consider the appropriate insolvency procedure
Ed Ellis is a Senior Manager in the Mercer & Hole Corporate Restructuring Team with experience of advising distressed companies and their stakeholders across a wide variety of sectors including Agriculture and Schools. For help and advice on any of these areas, please contact Ed here.