Close my Independent or Private School

Rescue, Recovery, and Closure Options for Independent and Private Schools

Schools operating in the private and independent education sector are facing a number of challenges that could to lead to insolvency for some. The introduction of VAT on school fees poses a real threat to student numbers, with more parents now having the weigh up the value of private education in an increasingly uncertain economic climate. 

If you are involved in running an independent or private school that has become insolvent, there are likely to be a number of options open to you. It is essential to act quickly in these circumstances, however, and make it a priority to obtain professional insolvency assistance.

Essentially, you need to ensure your actions do not worsen the position of your creditors, and that you are not open to allegations of trading whilst insolvent. But before we look at the potential options for an insolvent independent or private school, what sector-specific issues might have led to this unfortunate situation?

With some state schools improving their levels of discipline, offering a more diverse timetable, and enjoying better exam results, parents may have decided to enroll their children into high-performing local state schools or sixth-form colleges, rather than paying for private education at an independent school.

Rising fees, in conjunction with lack of parental wage increases, might also have influenced parents’ decisions against private schooling. When your school is already experiencing financial difficulty avoiding fee increases is a significant challenge, particularly when you are also trying to meet the high expectations of parents. 

• Added VAT on independent school fees

Independent and private schools are now no longer eligible for tax exemptions, mainly VAT and they are now required to pay taxes as per any commercial enterprise. Consequently this means independent schools need to add VAT onto their school fees, meaning a 20% uplift for parents. There are fears this could significantly impact student numbers as the added cost now means many will have to calculate the value of sending their children to an independent school, while other parents are being priced out of private education entirely. 

Older private and independent school buildings commonly require high capital expenditure for upgrade and maintenance, with ongoing revenue expenses such as heat and light, also typically high due to the nature of the building. Controlling these costs can be difficult, and although private schools tend to be asset-rich, they are also generally cash-poor with little available working capital.

Close an Independent or Private School via Liquidation

If the school's financial problems have take it beyond the point of rescue, you may need to look at ways of winding down the school's operations and dealing with its outstanding financial liabilities in an orderly and legally compliant manner. 

Closure of an insolvent independent school can be achieved through a formal process known as a Creditors' Voluntary Liquidation (CVL). This is a director-initiated liquidation option which allows an insolvent company to be wound down while taking care of its outstanding debts. A company can only enter into a CVL under the guidance of a licensed insolvency practitioner who will assume the role of the company's liquidator.

As part of the process, all assets belonging to the company will be identified before being sold with the proceeds going towards settling the company's debts as far as possible. Once this has been done, the company will then be struck off from the register of companies held at Companies House and will cease to exist as a legal entity.

“Shaun really helped me for quick legal advice in a stressful situation where I needed advice QUICK. Called me back within 30 seconds and gave me the advice I needed. Thank you”

Sam

 

Contact the Real Business Rescue Team today

Shaun Barton
Business Debt Expert

Rescue my Independent or Private School

Decisive action is needed if you are to prevent your independent school from being liquidated, and it is advisable to seek professional insolvency assistance at the earliest sign of financial trouble. If the school has already become insolvent, restructuring and financing plans can still be put in place if the circumstances are appropriate.

Additional finance

If your independent school is asset-rich, you may be able to secure financing based on one or more hard assets such as property, land, or equipment – a vital lifeline when your bank will not lend. Introducing a cash lump sum via asset-based finance allows you to meet your immediate liabilities, put in place a plan for restructuring, and move forward with more confidence.

Administration

Placing the school into administration offers an eight-week moratorium period in which to formulate a plan for recovery. During this time creditors are prevented from taking legal action against you, which offers a valuable ‘breathing space’ to plan restructure or secure vital additional funding.

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement, or CVA, involves negotiations with your creditors for a proportion of the school’s debt to be paid over a longer term. A licensed insolvency practitioner (IP) negotiates with unsecured creditors, 75% (by value) of whom must vote in favour of the proposal for it to go ahead.

Get a Quote Find Your Nearest Office

Other considerations for insolvent independent or private schools

The timing of communications, to parents in particular, is crucial to the school’s survival and potential for a successful outcome. If news emerges that it has entered insolvency, there is likely to be a mass departure of pupils, and any plan for restructure or recovery will be futile.

It is imperative that, as a director or trustee of an insolvent private school, you take professional insolvency advice as soon as you become aware the school is knowingly insolvent. This advice will not only help you understand your options for turning around the company's position, but it will also allow you to assess the potential personal financial exposure and whether you could be held personally liable for any of the school’s debts.

How Real Business Rescue can help

Insolvency is a complex and challenging position for any school, given the inherent concerns about the education of its pupils, as well as the potential redundancy situation for members of staff. Seeking professional insolvency advice at the earliest signs of financial distress and cash flow constraints is vital in giving your school the very best chance possible of overcoming its problems.

At Real Business Rescue we specialise in corporate recovery, insolvency, and finance. We help company directors, shareholders, and trustees each and every day navigate a range of challenges which threaten the ongoing future of their business. Call our expert team to arrange a free same-day consultation – we work with 100+ UK offices.