REVEALED: £26.6m cost of Hadlow Group transfer and how five colleges were bailed out to avoid insolvency

The eye-watering £26.6 million cost of the first two education insolvencies, and how five colleges were bailed out by the government to avoid the same fate, has been revealed by a new report. 

The National Audit Office today published a report into ‘Financial sustainability of colleges in England’, which revealed colleges in or close to being in education administration have cost taxpayers over £40 million in total. 

Since Hadlow College and West Kent and Ashford College (WKAC) became the first to be placed into education administration, in mid-2019, the government has spent £26.6 million on keeping the doors open and “facilitating a long term solution”.

The government does expect to receive some money from the sale of assets which are no longer required for educational provision, however. 

The figure includes £18.1 million spent on financial support related to secured creditors and £2.3 million in payments to administrators BDO. 

FE Week reported in May BDO had come under increasing pressure from the Education and Skills Funding Agency to keep their costs down, as they had been running the colleges for far longer than had originally been planned. 

The NAO has also reported the Education and Skills Funding Agency (ESFA) has provided £14.4 million in emergency funding to five other colleges in “serious financial difficulty”, which the agency wanted to keep out of the insolvency regime. 

The agency, the report reads, has recognised that the cost and effort of handling colleges in education administration means “it may need to limit the number of colleges in the insolvency regime at any one time,” depending on each case. 

The Department for Education said protecting students is “the over-riding priority for colleges that have entered education administration,” and the “most significant costs” from the two insolvency cases were related to “supporting the operation of the colleges while they were in administration and in facilitating a long-term solution by enabling the transfer of the provision to other local providers”.

The department declined to name the five colleges on the grounds of commercial confidentiality.

It is expected the department’s upcoming FE White Paper will include changes to legislation to enable the government to take ownership of failing colleges rather than force them into insolvency. 

Hadlow and WKAC became the first FE colleges to become insolvent after, as revealed by FE Commissioner Richard Atkins, it fell into an “extremely serious financial situation”

Both colleges’ boards, Atkins reported, failed in their fiduciary duty and put “the sustainability of both colleges and learners at risk”, having only found out about the financial situation at the college shortly before Atkins arrived to intervene in the colleges, despite the situation being so dire the college had to ask the ESFA for exceptional financial support. 

The commissioner also found the colleges’ principal and deputy principal, Paul Hannan and Lumsdon-Taylor, had cut the boards out of decision-making, and Hadlow College’s financial health score was only ‘good’ because it did not take information about loans into account.  

Hannan and Lumsdon-Taylor, as well as a swathe of governors at both colleges, resigned after the college was placed into intervention. 

Hadlow and WKAC’s provision has now been split between three neighbouring colleges, with North Kent College, Capel Manor College and EKC Group each taking a slice. 

Betteshanger Park, a country and business park owned by Hadlow College, was also sold off for an undisclosed sum last December. 

The National Audit Office report also revealed how the government is intervening in nearly half of all open colleges, and had spent nearly three-quarters of a billion pounds on bailing out and restructuring colleges.