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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 face a number of challenges that have led to insolvency for some. Stronger competition due to improving state schools, rising operational costs, and lack of financial reserves, commonly contribute to a poor commercial position.

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?

  • Improving state schools

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 independent and private school fees

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. 

  • Potential VAT on independent school fees

There is substantial debate as to whether independent and private schools will be allowed to retain their status as a charity going forward. Charitable status means these schools do not have to operate at a profit and can are eligible for certain tax exemptions, mainly VAT. Should rumoured plans to remove independent schools' charitable status be realised, these establishments will be required to pay taxes as per any commercial enterprise. Consequently this will mean many independent schools will need to add VAT onto their school fees, meaning a potential 20% uplift for many parents. There are fears this could significantly impact student numbers.

  • Controlling expenditures

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.

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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.

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.

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Other considerations for insolvent independent or private schools

  • Taking care when communicating with stakeholders

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.

  • Potential for personal liability for directors and trustees

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.

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If your company is struggling with unmanageable debts, squeezed cash flow, or an uncertain future, you are far from alone. We speak to company directors just like you every single day, and we are here to give you the help and advice you need.
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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.

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