UK government unveils higher education restructuring regime

Out-Law News | 20 Jul 2020 | 3:32 pm | 3 min. read

 The UK government has announced the details of a restructuring regime for the higher education sector in response to challenges caused by the Covid-19 pandemic.

The scheme has been launched to support higher education providers in England that could be at risk of insolvency. It will only provide support when all other finance options have been exhausted and when there is a case to do so.

The government is also setting up a Higher Education Restructuring Regime Board that will be independently chaired and include input from people with specialist knowledge. The education secretary will ask the board for advice before deciding whether to intervene in individual cases.

The Department for Education (DfE) said in the document announcing the regime (15 page / 190KB PDF) that it did not represent a taxpayer-funded bailout of individual higher education organisations, and was not a guarantee that no institution would fail.

Institutions requiring support from the government through the restructuring regime will have to meet certain conditions designed to ensure they make changes that will enable them to make a “strong contribution” to the country’s future.

 

 

Withyman Tom

Tom Withyman

Partner

Whilst the scheme may solve a pure liquidity issue, taking on more debt is unlikely to be the best solution for most providers.

Criteria for support include the need to protect current students, especially disadvantaged and local students; preventing the loss of strategically important or unique teaching provision; and preventing the significant loss of research capability and capacity.

Providers will be expected to work with the DfE on an open-book basis, and undergo an independent business review to draw up a restructuring plan. The government would only then decide whether to support the plan with loan funding.

Insolvency expert Tom Withyman of Pinsent Masons, the law firm behind Out-Law, said the DfE’s restructuring regime had the welfare of current students at its heart and was designed both to support only viable restructurings and provide value for money for the taxpayer.

“The scheme potentially has two shortcomings: first, it is loan finance to be provided as a last resort, with conditions and repayment terms to be determined by the business model of the provider. So whilst it may solve a pure liquidity issue, taking on more debt is unlikely to be the best solution for most providers,” Withyman said.

“If more structural reform is required, a provider will need to agree restructuring terms in parallel with other stakeholders such as banks and pension schemes who will have their own expectations as to how government support should be treated,” Withyman said.

Withyman said the “well-intentioned but onerous conditions for intervention” may restrict the scheme’s availability.

Separately, the Office for Students (OfS) has announced a consultation on a new targeted condition of registration (29 page / 506KB PDF) that would allow it to intervene more quickly in cases where universities or colleges are at material risk of closure.

The proposals would require universities and colleges at risk of closure to comply with specific directions to take action to protect students, such as arranging to transfer students to other institutions, awarding credit for partially completed courses or qualifications for completed courses, and enabling students to make complaints and apply for refunds or compensation.

The OfS said the proposed new condition was a necessary means to protect students and give it the powers it needed to act swiftly where there was a material risk the provider would exit the sector.

Higher education expert Gayle Ditchburn of Pinsent Masons said it was interesting that neither the DfE nor the OfS referred to each other’s proposals in their documents, but she expected this to change when the final policies were published.

Ditchburn said the OfS had been highly critical of the content of student protection plans across the sector and that these were generally lacking in substance. Although the proposed new regulatory condition would only apply to those providers where in the judgment of the OfS there is “a material risk of market exit”, Ditchburn said it should prompt action by all institutions.

“All providers should start now to think carefully about what measures they would need to put in place in the event of a requirement to implement their student protection plans and to update these accordingly, rather than developing these only at the time when the circumstances require,” Ditchburn said.

“The OfS will makes its judgement about a provider on whether there is a material risk of market failure on a range of information at its disposal but, undoubtedly, a request by a provider for support under the proposed new higher education restructuring regime would likely trigger such an assessment,” Ditchburn said.