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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 with the accelerated the shift to online learning. As online learning becomes increasingly utilized, there are predictions that face to face learning may soon be 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, college, 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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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.
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