Bailout cash will still be available under new insolvency regime

Colleges will still be able to access some bailout funding once the insolvency regime comes into effect next year – even though the government has previously said the tap will be switched off.

This was revealed in a letter from Peter Mucklow, FE director at the Education and Skills Funding Agency, published on Wednesday, which detailed post-16 funding arrangements for next year.

It said the agency’s “new approach to intervention, including the arrangements for the insolvency regime, will become operational in April 2019, once the restructuring facility has finally closed and longterm (over 12 months) exceptional financial support is no longer available”.

However, it did not mention either short- or medium-term EFS – indicating they will still be available.

A Department for Education spokesperson said it was “still looking into the details of the exceptional financial support. More information will be available in due course.”

Mr Mucklow’s letter said the incoming insolvency regime was a “significant” change for colleges, and would require “ever more effective monitoring and management of financial resources by colleges and those of us that have a responsibility for the best use of public funds”.

“We would strongly encourage you to audit your internal financial monitoring and management arrangements to satisfy yourselves that you can and will meet this challenge,” he wrote.

He urged colleges to address any financial issues “as early as possible”, as “the risk of deferring or taking an overly optimistic view of resolution now carries a significant risk”.

As part of a request from ministers to be “more proactive in anticipating financial concerns”, colleges “that are evidently deteriorating or at risk financially” should expect challenges from the agency.

The insolvency regime, which will allow colleges to go bust for the first time, was due to have been introduced this year but will now come into force on January 31, the DfE confirmed last month.

It has previously made it clear that once the insolvency regime comes into effect, the exceptional financial support tap will be switched off.

Cash from the restructuring facility, which was intended to support colleges to implement post-area review changes but has increasingly been used to prop up failing colleges, must also be spent by the end of March next year.

A spokesperson told FE Week in June that new arrangements would be put into place which would be “centred round the new insolvency regime”.

In an interview last month, the FE commissioner Richard Atkins (pictured above) said there was likely to be “some money to support colleges that have become insolvent to get back on their feet in some way”, but it was likely to be a “much smaller amount of money” than is available at the moment.

“I don’t think it will be given in the form of handouts to existing governors and management to carry on as you were,” he told FE Week.

Instead, he expected it would be focused on “ensuring that the provision in this area continues” where a college has “either become or is about to become insolvent”.

The costs of EFS are understood to have increased significantly in recent years.

FE Week reported in January that 12 cash-strapped colleges received bailouts totalling more than £11 million in December last year, after the DfE accidentally published the figures.

These included Bradford College, which received two payments each worth £1.5 million in the space of a month, and Stoke on Trent College, which received £500,000 while it awaited the outcome of a £21.9 million application to the restructuring facility.

EFS is cash for colleges that are “encountering financial, or cashflow, difficulties that put the continuation of provision at risk”, and is available as short-, medium- or long-term support.

Both short-term and medium-term re-profiling EFS would be paid back within 12 months, and may result in the college being issued a financial notice to improve.

Longer-term EFS is for cases where “it is clear that full repayment could not be made within 12 months”, and will automatically result in an ‘inadequate’ financial health rating for the college and intervention from the FE commissioner.