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Rescue, Recovery, and Closure Options for Education Companies
There have been well-documented widespread changes to how education is delivered over the past few years. The Covid-19 pandemic accelerated the shift to online learning, with the vast majority of teaching moving to online platforms to allow education to continue during the height of the pandemic.
While most teaching has returned to the classroom, there is a worry over a long-term cultural shift taking place, whereby online learning becomes increasingly utilized with face to face learning being reserved for only those subjects which involve a practical element. This move has the potential to negate the benefits of living on campus in student accommodation; something which often comes at a high financial cost for students, yet is a valuable source of revenue for the universities and private schools which provide it.
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Depending on the financial position of your university, private school, or other educational establishment, you may be considering whether liquidation could be the best solution for your current problems. While liquidation is often a last resort, for those companies which have become insolvent and have little chance of recovery, it could be the most appropriate step for all concerned.
There are two main ways an insolvent company can be liquidated. This can either be done through a compulsory liquidation process whereby a creditor of the company forces the company into closure; alternatively, the insolvent company’s directors can initiate liquidation proceedings themselves. Voluntary liquidation is achieved through a Creditors’ Voluntary Liquidation – or CVL which is administered by a licensed insolvency practitioner.
The ultimate aim of a CVL is to close down an insolvent company in an orderly manner. As part of the process, all assets belonging to the company will be identified, independently valued, before being sold. Proceeds will be distributed amongst creditors according to a determined hierarchy as set out in the Insolvency Act 1986. It will be the appointed insolvency practitioner’s role to liaise with creditors during this time, and in the case of a school being liquidated, they will also be the one dealing with parents of pupils where emotions are likely to be running high.
Once the assets of the business have been liquidated and distributed accordingly, the CVL process will end with the company’s name being removed from the register held at Companies House The company will then cease to exist as a legal entity.
While the liquidation of any company must be done in a careful and considered way, this is even more important when it comes to the liquidation of an educational institution where the ongoing education and future prospects of enrolled students need to be protected.
In many cases, once a company becomes insolvent and begins a liquidation process, they will be required to cease operating immediately in order to protect creditors from any further losses. However, the closure of an educational institution needs to be carefully managed so as to protect the interests and welfare of students.
If you are in the position where you are considering liquidating your university, college, or independent school, it is vital that you seek advice from a licensed insolvency practitioner as a matter of urgency. An insolvency practitioner will be able to give you advice directly relevant to your position as an educational institution.
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Timothy ran a small but popular independent school in the Midlands. The school offered both day and boarding options, and at the time of the COVID-19 pandemic, had around 100 pupils enrolled, with a similar number of teaching and back office staff.
When the COVID-19 pandemic hit, schools were forced to close; Timothy’s school moved day pupils to online learning immediately, while boarders were prepared to return home. While all students were given work to complete and teachers continued to give their lessons via a virtual platform, parents demanded a portion of school fees – which had been paid in advance - were refunded to make up for the reduced level of teaching and extra-curricular activities.
The start of the new term saw a substantial percentage of international pupils withdrawing from the school, choosing to stay closer to home. The school offered fee freezes as well as discounts on meals and sporting activities, yet it was struggling to enroll enough new pupils to bridge the shortfall. Timothy contacted Real Business Rescue to understand his options.
After talking through the possibilities, Timothy decided upon a sale to an unconnected third party. We were able to identify a keen and proceedable buyer, and after a process of negotiation and due diligence, a deal was agreed. Timothy’s school will be amalgamated with a larger independent school which was keen to expand into the area. The merger and all associated negotiations were fully handled by our in-house corporate finance team.
There are always buyers looking to acquire established schools, universities, and academies, so even if yours is currently experiencing financial worries, there could be someone out there willing to take it on.
The ability to sell your school or other education business will depend on a number of factors such as local reputation, facilities, pupil numbers, and the quality of staff. If a sale can be agreed, it can be arranged as a streamlined process, meaning little to no disruption to either staff or students. Teachers will be transferred over to the new company through a process known as Transfer of Undertakings (Protection of Employment) TUPE meaning they will retain all of their existing employment terms.
Despite the numerous advantages of selling your education institution, it goes without saying that selling a business – whether in the educational sector or not – is an often tricky, time-intensive, and potentially stressful process. Particularly when it comes to a school or university, there are a huge number of things to juggle, from identifying the right buyer, negotiating a price which both parties are happy with, all the while ensuring the education of students is in no way affected or compromised at any point.
If you are considering selling your school or university, it is advisable to speak to a corporate finance expert before you start the process. Not only will they be able to determine whether your company is likely to be desirable on the open market – and therefore the likelihood of achieving a sale – but they will also be able to value your institution and give sound and actionable advice on how to achieve the best price.
An experienced corporate finance expert will add a huge amount of value to the transaction, and it is likely they will be able to see you achieve a better price and complete the sale in a much quicker time than if you handled the process yourself. Real Business Rescue’s in-house corporate finance are here to work alongside you and support you at every stage of the sale process. We will harness out network of investor contacts to help identify a proceedable buyer quickly, market your school or university through a variety of channels, and be on hand through valuation, negotiations, and due diligence.
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Depending on the scale of your current financial worries, as well as the reasons behind them, there are a whole host of business rescue and recovery options which could be put in place to help reverse the company’s fortunes. These solutions can be both formal and informal in nature, with the right option for you based on how much support and intervention your school or university needs to get back on its feet.
If your current financial problems are temporary, entering into negotiations with creditors could help you manage your cash flow while incomings are reduced, while still allowing your school to continue to operate. This can be done either through informal discussions with creditors, or alternatively through a formal insolvency procedure known as a Company Voluntary Arrangement (CVA).
A CVA can be proposed to creditors by a licensed insolvency practitioner. They will assess the liabilities of your school and determine how much it can afford to repay to creditors on a monthly basis. The ultimate aim is to reduce your monthly outgoings to a level which is sustainable going forwards, while still ensuring your creditors receive a satisfactory amount towards your debt.
The potential stumbling block with a CVA is that at least 75% (by value) of your creditors must give their agreement to its implementation. A CVA typically runs for between 3-5 years, with creditor contributions spread across this time period. Therefore, you must be able to demonstrate to creditors that your company has long-term viability and will be able to maintain the proposed payments for the duration of the CVA. If your creditors doubt this, it is likely your proposal will be rejected and you will need to seek an alternative way of rescuing the company.
One of these ways may be to place your school or university into an administration process. Administration is particularly suitable for those who companies who are dealing with creditor pressure or threats of litigation action. Once a company is placed in administration, it is granted a moratorium shielding it from winding up petitions or other legal action which may result in the company being forced into a court-ordered compulsory liquidation.
If your school, or other education establishment is run as a limited company, you may be entitled to director redundancy if the company becomes insolvent and is subsequently liquidated. This is because, although you are the company’s director, you may also be classed as an employee too.
As long as you are on the payroll and take a regular salary though PAYE – even if you also take dividends to boost your income – and you have worked for the company for at least two years, it is highly likely you will have a valid claim for redundancy once the company is liquidated. The amount you may be entitled to will depend on a number of things including how much you are paid, the hours you work, and your length of service. You may also be entitled to additional statutory entitlement such as arrears of pay, unpaid wages, and holiday which has not been taken.
As part of the liquidation process, your appointed insolvency practitioner will be able to refer you to a fully regulated claims management firm who can help you discuss your director redundancy claim further.
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