Clause 27 - Further education bodies in education administration: application of other insolvency procedures

Skills and Post-16 Education Bill [Lords] – in a Public Bill Committee am 2:45 pm ar 7 Rhagfyr 2021.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Toby Perkins Toby Perkins Shadow Minister (Education) 2:45, 7 Rhagfyr 2021

I beg to move amendment 61, in clause 27, page 33, line 19, at end insert—

“(2C) Before applying to a court for an education administration order in relation to a further education body in England, the Secretary of state will conduct a review of the impact of the closure of a Further Education institution on learning opportunities in the local area and provide a report to Parliament on steps taken to ensure that the opportunities for learners are not restricted by his application for an education administration order.”

Amendment 61 is a probing amendment that would require the Secretary of State to review further education provision prior to applying for an education administration order for a college. There should also be a review of the impact of closing a college; if the impact of such a closure would be a reduction or complete removal of provision, we would request that the Secretary of State report to Parliament to allow for appropriate parliamentary scrutiny.

It is crucial for the Secretary of State to ensure that local areas have adequate further education provision before deciding to merge and close colleges. The colleges most likely to be closed are often those in more rural areas, those that are smaller, those that are facing specific challenges or those in communities that face specific challenges because they do not have the density of population. Although we recognise that there may be financial collapse as a result of their geographic isolation, that should not necessarily mean that the provision their students rely upon disappears with the merger of the college.

It is important to have scrutiny at both a local and national level. We believe that it should be parliamentary scrutiny, to ensure that the Secretary of State commits to reporting to the House before announcing such a decision, and to ensure that there is a review of the impact of a closure on the local labour market and on the courses available to people in that local community.

Photo of Alex Burghart Alex Burghart The Parliamentary Under-Secretary of State for Education

Amendment 61 would require the Secretary of State to conduct a review of the impact of the closure of an FE institution on learning opportunities in a local area and provide a report to Parliament on the steps taken to ensure that opportunities for learners are not restricted ahead of an application for an education administration order. We will hear about education administration orders in the next few minutes.

I appreciate what Labour Members are trying to do, but the effect would be to delay an application for an education administration order, which would run counter to the purpose of the amendment. First, if an FE body becomes insolvent, it risks being placed into a regular insolvency procedure by a creditor or its board. The primary objective of a regular insolvency procedure is to prioritise the interests of creditors. This means that any closure scenario could result in the best returns to creditors being prioritised over the needs of keeping the body open for learners. Going down a standard insolvency route with a college will prioritise creditors, risking students studying there being pushed to one side.

That is not the case with an education administration order. Education administration was brought into force via the Technical and Further Education Act 2017 for this very reason. An education administrator has a special objective to prioritise the interests of learners by avoiding or minimising disruption to student studies, which sits above the interests of creditors. This means that an education administration order does not immediately result in the closure of that FE body. Depending on the time available in any given insolvency situation, the Department conducts rigorous contingency planning in the run-up to a particular education administration—it is front-loaded; it happens before we actually place the order—including a review of the options available that best prioritise learners. Once an FE body is in education administration, all options to exit, including closure, are further reviewed by the Department in conjunction with the education administrator. When considering the various options to exit education administration, the interests of learners are paramount, given that special objective. The Department also conducts public sector equality duty reviews as part of that.

First, the requirement to undertake a review of learner opportunities and produce a report to Parliament, as the amendment proposes, would significantly delay an education administration application. Any delay at this time would risk the FE body being placed into a normal insolvency procedure, which would not prioritise the interests of learners.

Secondly, although I acknowledge the importance of transparency, a public report at that stage of the process would not be helpful. Without knowing specifically what hon. Members intend to be covered in such a report, the broadness of the amendment means that a report would likely contain sensitive information, which in turn could jeopardise an education administrator’s sale or transfer negotiations with other education bodies. This, too, could cause delays and actually reduce priority for learners.

Thirdly, reporting is already in place as part of an education administration. Education administrator reports, published according to statutory deadlines, are available from Companies House and include details of how the administrator has undertaken the education administration, the options considered and the reasons for a preferred course of action, together with financial information such as the statement of affairs of the FE body and the education administrator’s receipts, payments and time costs.

Finally, I stress that education administration happens mercifully rarely. Only two further education colleges have been placed into education administration to date. The amendment would not introduce anything that is not already intended in an education administration and would, I am afraid, adversely affect the interest of learners. I therefore suggest that it is not added to the Bill.

Photo of Toby Perkins Toby Perkins Shadow Minister (Education) 3:00, 7 Rhagfyr 2021

I listened carefully to the Minister. As I said at the outset, this is a probing amendment to identify the extent to which the interests of learners are considered within education administration. I also listened to the Minister’s point regarding the creditors of such an institution, which was important and well made. I accept what he said about the need to go into education administration with due urgency. In that process that follows, which he laid out, there is a real need for the Government to say more, perhaps through a parliamentary statement, for people to better understand the situation on the ground in regard to future provision and those affected by any change in that provision. Notwithstanding that, it is not our intention to push the amendment to a vote.

Photo of Matt Western Matt Western Shadow Minister (Education)

I was hoping to catch my hon. Friend’s eye.

Photo of Toby Perkins Toby Perkins Shadow Minister (Education)

Within my intention not to push the amendment to a vote, I would like to give way.

Photo of Matt Western Matt Western Shadow Minister (Education)

It is like “Just a Minute”. I thank my hon. Friend for giving way. I just want to elaborate on the point in his concluding remarks about how many colleges face financial uncertainty. According to the Times Educational Supplement, it was one in seven in a recent survey. We saw with Hadlow College—one of the two that the Minister was referring to—that 2,000 students suddenly lost their places. That can have a huge impact on a town and a region.

Photo of Toby Perkins Toby Perkins Shadow Minister (Education)

It absolutely can. Cases such as that impact not only the learners affected at that very moment, but on the provision for the next generations coming through. It has a very detrimental impact on the local community. My hon. Friend’s point is well made. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Maria Miller Maria Miller Ceidwadwyr, Basingstoke

With this it will be convenient to consider clause 28 stand part.

Photo of Alex Burghart Alex Burghart The Parliamentary Under-Secretary of State for Education

Clause 27 proposes to clarify ambiguities in the Technical and Further Education Act 2017 regarding the use of company voluntary arrangements—a procedure allowing a company or corporation in insolvency proceedings to come to an agreement with its creditors over the payment of debts. Company voluntary arrangements can be used as an exit route for normal administration, as set out in insolvency legislation.

Company voluntary arrangements can also be used as an exit route from education administration under the FE insolvency regime, which we have just been debating. That has been clarified in case law, which has been in place since March 2020, when the High Court of Justice Business and Property Courts of England and Wales ruled that in the education administration of West Kent and Ashford College, education administrators had the power to propose a company voluntary arrangement.

We are using the opportunity to legislate in the Bill to clarify ambiguities in the current legislation and cement that existing case law into legislation. To be clear, we are cementing what the courts have already decided on. To achieve that, clause 27 proposes to extend the existing power of the Secretary of State for Education to make regulations related to the application of insolvency legislation to FE bodies so that express provision may be made in respect of the use of company voluntary arrangements.

Clause 28 deals with the potential conflict related to the treatment of secured creditors as between the transfer scheme provisions of the Technical and Further Education Act 2017 and the provisions of the Insolvency Act 1986, as applied by the 2017 Act. Specifically, the proposal amends schedules 2, 3 and 4 to the 2017 Act, making it clear that, where a transfer scheme looks to transfer secured assets free of the security, that can happen only with either the consent of the secured creditor or a court order. That is in line with protections for secured creditors in normal administration in insolvency proceedings.

Clause 28 also cements into legislation the Government’s response to the technical consultation for the insolvency regime for further education and sixth-form colleges, which was made in June 2018. We have informed the three main lenders to the FE sector—Barclays, Lloyds and Santander—of our proposed changes, and I am pleased to report that they are supportive. Barclays said:

“As a lender with significant loan exposure to the English FE sector (and desire to continue to support colleges with new loans) we are in favour of the changes proposed. The Transfer Scheme changes in particular provides welcome clarity on a point that had previously had a negative impact on sector risk profile and our appetite to lend.”

These clauses are good for the sector and good for the law, and I believe they should be good enough for us.

Photo of Toby Perkins Toby Perkins Shadow Minister (Education)

As the Minister was reading out that very positive quote from Barclays about his clause, it occurred to me how rarely he has had the opportunity to read out support for his Bill over the course of its passage. That is unsurprising, of course, when he is pressing ahead with amendments that 86% of respondents to his consultation are against. None the less, it was good to hear that full-throated support for this proposal from Barclays.

We do not intend to vote against clauses 27 or 28. I will simply make the point that the financial pressures facing our further education sector over the past 11 years, and particularly the past 12 months or so, have been truly unprecedented. I regularly meet representatives of colleges who are absolutely at their wit’s end, and not only about the scale of the funding cuts they have experienced over the past 11 years, but about the extent to which last-minute decisions are constantly made that leave them in a position in which they have to make redundancies in order to stay afloat, only then to discover sometimes that there is a change in the Government’s policy and they have to recruit for some positions that they had made redundant only a few months before.

So it was with the recent announcement about the adult education clawback. I have asked parliamentary questions on this issue. A number of colleges received a clawback from their adult education fund and were told that there was no right to any appeal. Then the previous Secretary of State said that they would allow appeals and I believe that in some cases the appeals were granted. In the meantime, however, those colleges were forced to cut their cloth accordingly.

Consequently, I say to the Government that although we do not oppose clauses 27 or 28, we believe that there needs to be a much greater sense of responsibility about the Government’s role in the financial distress that many of our colleges are currently suffering, which my hon. Friend the Member for Warwick and Leamington referred to earlier, and about the impact on those colleges of the constant last-minute decision making that they have suffered over the past 11 years.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Clause 28 ordered to stand part of the Bill.