Revealed: Hadlow College owes £40 million to over 300 organisations

A scandal-hit college and the first to enter education administration owes £40 million to over 300 companies, charities and government agencies, FE Week can reveal.

Three insolvency practitioners, all from BDO LLP, were assigned to Hadlow College in May 2019 and their joint report is due to be published next week.

FE Week has been leaked a copy of the report. 

It lists £5 million to Barclays Bank in the form of a secured loan, along with £35m to unsecured creditors, including:

  • £11m to the Education and Skills Funding Agency
  • £2m to HMRC for VAT and PAYE
  • £9m to Pension Scheme
  • £4m to West Kent and Ashford College
  • £3m to around 300 individual companies

Under a normal administration, property could be sold to pay back creditors, but an education administration has a “learner protection objective”.

This has led BDO to assess the likelihood of creditors being paid back as “uncertain” because “the majority of the assets of the College are designated to be for educational purposes.”

However, concerning the £9m debt to the pension scheme, BDO has said they have been “advised that staff accrued pension rights will be unaffected by the Education Administration and any subsequent sale process”.

In addition to the debts, the Department for Education is having to fork-out for the costs of the administration process, set to exceed £2 million.

BDO, between 22 May 2019 and 11 October 2019 have billed the DfE for £627,407 for a total of 3,208 hours (£196 per hour average, with the highest being £320 per hour for BDO partners).

The administrators estimate this will rise to £1.1m by 24 April 2020 along with a further £1m on four property agents, three law firms and a specialist insurer.

And BDO is not only being paid by the DfE to undertake the education administration for Hadlow College.

The Hadlow College Group included West Kent and Ashford College (WKAC), which is a separate legal entity sharing many of the staff and back-office services.

WKAC was placed into Education Administration on 16 August 2019, with BDO again acting as the insolvency practitioners and they will report, in a similar fashion, in due course.

The BDO forensic services team were also paid to undertake an investigation into “the conduct of all relevant persons during the three years before the Education Administration”.

Their “confidential” investigation report “was submitted to the Secretary of State on 22 August 2019.”

The education administrations are also cooperating with the government’s Insolvency Service, which is “undertaking enquiries as to the conduct of relevant personnel in the period leading up to the onset of insolvency”.

The BDO report and Insolvency Service enquiries are understood to be focused on the role of the governors at both colleges as well as Mark Lumsdon-Taylor, Group Deputy Principal, and Paul Hannan, Group Principal who were both suspended in February.

As reported by FE Week (see below), the FE Commissioner investigated how the college ran out of money and claims of financial irregularities.

The FE Commissioner report, published in May, listed governance failures but also that Hannan and Lumsdon-Taylor “regularly made decisions themselves outside of executive and any open discussion – and reacted strongly to questioning or challenge”.

Amongst a number of concerns with data and land transactions, it has been alleged Lumsdon-Taylor doctored emails from the ESFA to prove to the agency that he was entitled to claim extra funding, which he said had been agreed when Hadlow College adopted West Kent & Ashford colleges from K College.

This unauthorised funding over many years will go some way to explain why Hadlow College now owes the ESFA £11 million, according to the education administrators.

HOW FE WEEK EXPOSED IT ALL – A FULL TIMELINE OF THE SAGA:

11 Feb: FE Week broke the news the FE Commissioner had intervened at the Hadlow Group, likely because of its finances; and deputy principal Mark Lumsdon-Taylor had resigned.

14 Feb: We later reported Hadlow College and WKAC principal Paul Hannan had gone on sick leave.

15 Feb: Graham Morley was announced as the interim principal of Hadlow College and WKAC. It was also reported the commissioner’s investigation had been triggered by the group’s application for restructuring funds to the Department for Education’s Transactions Unit.

18 Feb: Hannan and Lumsdon-Taylor were reported as having been suspended, and WKAC chair Paul Dubrow having stood down, with Hadlow chair Theresa Bruton taking over from Dubrow.

1 Mar: Hadlow Group colleges’ boards in “meltdown” as governors step down, the commissioner loans one of his deputies to stand-in as chief financial officer, and it was found Hadlow had not had an accountant on its board.

8 Mar: FE Week revealed the truth behind the investigation into Hadlow College, which told how Lumsdon-Taylor had been caught altering emails from the ESFA to justify claiming taxpayer funding, and the college had failed in a bid for £20 million from the ESFA. It was also revealed the college had failed to sell Betteshanger Park, an organisation within the Hadlow Group, for £4 million and had to spend £1.2 million on new foundations.

11 Mar: Theresa Bruton resigns, as did two other governors. The ESFA and commissioner’s team met the Friday before, ahead of a decision on whether the education secretary should continue to financially support the colleges, or let either of them go into administration.

15 Mar: FE Week exposes how the DfE bailed out WKAC was ordered by the High Court to pay £1 million that was owed to BAM Construction for the construction of a state-of-the-art teaching building in November.

18 Mar: Paul Hannan resigns.

19 Mar: Ex-Association of Colleges boss Martin Doel and mergers and acquisitions expert Andrew Baird are announced as the new chairs of WKAC and Hadlow, respectively.

26 Apr: ESFA takes control of investigation into Lumsdon-Taylor, who is also being evicted from his on-campus flat. But the college admits to paying for the first year of a Master’s degree course he is on at Manchester Metropolitan University.

15 May: Hadlow and WKAC are handed notices to improve by the government after being found to have ‘inadequate’ financial health.

17 May: FE Week broke the news Hadlow College had asked the education secretary, Damian Hinds, to apply to put it into education administration. A financial advisory firm was contracted to shop around for buyers of the group’s assets, including Hadlow and WKAC.

20 May: Hadlow College confirmed it was looking to sell Betteshanger Park, and intends to find a buyer by 31 July.

22 May: The High Court grants the education secretary’s application, and Hadlow College becomes the first FE body to go into education administration.

23 May: FE Commissioner publishes intervention reports into Hadlow and WKAC.

5 Jul: Hadlow College making ‘reasonable progress’, Ofsted finds

11 Jul: FE Commissioner recommends 3-way split for Hadlow College Group

15 Aug: West Kent and Ashford College apply to enter education administration