The former boss of the Skills Funding Agency took an “extraordinary interest” in the proposed sale of apprenticeship giant 3aaa – and “grabbed” a power he did not have, the High Court has heard.
Sir Peter Lauener was accused of “making it as hard as possible” for the training provider to advance an application for its government contracts to be taken over by Trilantic Capital Partners (TLP).
It was put to Sir Peter, which he strongly denied, that he “just did not care about the correct legal process” as he defended “banter” emails with colleagues.
Apprenticeships tycoon Peter Marples and his family are suing the Department for Education for “negligence and misfeasance in public office” over the refusal in December 2016, claiming the DfE’s Skills Funding Agency (SFA) “breached their duties” by “exercising a non-existent power to refuse a change of control”.
Witnesses for the claimants completed their evidence in the trial last week. This week, the court is hearing from witnesses from the defence.
Sir Peter, who was SFA chief executive at the time, gave evidence in the High Court on Monday and Tuesday.
Buyer’s plan posed ‘threat’
He said he felt the business plan proposed by TLP was “unachievable” in light of an imminent change in the apprenticeship levy, due to come into effect from April 2017.
“I thought the business plan that was set out was completely unfeasible, I thought there was more protection in calling that out at this point and saying this gave us grave concerns and we would have to consider terminating the contract”, Sir Peter explained.
Due to TLP’s expectations around growth in non-levy apprenticeship funding, the business plan “was a red flag, posing a credible threat to the future stability of the business, and hence to the performance by 3aaa of its contract, potentially leaving the SFA to pick up the pieces”.
The court previously heard that the idea of seeking “approval” in a training provider sale served as a “shorthand for the process by which notice was given in order to seek an assurance that the SFA did not intend to exercise its right of termination”.
Sir Peter reiterated how this “loose language” was used.
‘Retrospective’ change of control power
Adam Solomon KC, for the claimants, raised that the SFA has never denied a change of control for a training provider before or after the 3aaa refusal.
He told the court that the agency had even agreed to retrospective applications for change of ownership in two cases after the providers were sold – one for QA Ltd and another for GP Strategies.
Sir Peter said he was not personally involved in those retrospective changes of control and replied: “I would argue that [retrospective applications] was very bad form and something I would not expect to happen”.
Solomon showed the court an email from FE Week’s former editor, Nick Linford, to Sir Peter in September 2016, which informed the SFA of a potential sale of 3aaa. It said: “Just hearing these guys will buy 3aaa. Over £100 million. Guessing you’ll novate their £30 million contract…gutted”.
This was months after KPMG had investigated 3aaa. While KPMG did not find “any evidence of deliberate circumvention of funding rules”, they had raised “quite significant errors in the data, that left a shadow of doubt in my mind”, according to Sir Peter. The SFA clawed back £300,000 from 3aaa following KPMG’s report.
Solomon identified Linford as the person who also triggered the KPMG investigation, claiming he had “animus” for 3aaa.
Marples’ KC then showed the court an email from Sir Peter which followed a conversation with 3aaa chair Derek Mapp about the potential sale and said: “He [Mapp] absolutely understood that they would need our agreement to going ahead with anything”.
Solomon said: “The truth is that you personally, and the SFA, have repeatedly told 3aaa they require your agreement in advance of the TLP deal”.
He asked: “Am I right that there is no example in which SFA ever said they will not consider retrospective application for change of control?”
Sir Peter said the answer is “no, as far as I’m aware”.
Solomon replied: “At this point, the contract could permit retrospective applications, as had happened with others?”
Sir Peter said: “I wanted that to be put into the contracts.”
Solomon hit back: “Even though you knew full well that your current contract had no such point, to demand no retrospective application and that you wanted this changed for the future, you wanted to grab that power now, that you did not have and apply it to 3aaa. You just did not care about what the correct legal process was, and you were making it as hard as possible.”
Sir Peter said that was “absolutely not” what he was trying to do.
Sir Peter told the court: “I am confident that I was fully aware at the time that the question I needed to address, under the contract, was whether, in my absolute discretion, I considered that the change in ownership would prejudice the provider’s ability to deliver the services. And it was on that basis that I decided to exercise what I had understood the SFA’s rights to be.
“I acted, at my discretion, in order to avert the threat posed by the prospective takeover of a major training provider by an investor who appeared to have unreasonable expectations as to the future performance of the business in which he intended to invest”.
Solomon showed Sir Peter evidence that his deputy director Sharon Forton had originally thought the 3aaa change of control should be accepted in the early days of discussion.
The KC asked Sir Peter whether, other than on this occasion, “had you ever previously countermanded a recommendation from the team dealing with change of control?”
Sir Peter replied: “No I hadn’t, in fact I had seen very few of them, most were entirely routine. I felt this [3aaa’s change of control] raised accounting officer issues because of a recent visit, the KPMG audit and precious value for money exercises”.
Unprecedented involvement
Solomon said Sir Peter had begun taking an “extraordinary interest”, “unprecedented involvement” and had begun “making demands of your colleagues which you had not made on any other change of control application”.
He showed emails where Sir Peter asked: “What do our rules say about this type of transaction.”
Solomon said this was a “curious question to ask” and suggested Sir Peter had “no idea” what the rules said about the transaction, contrary to the evidence he gave.
Sir Peter said he “couldn’t quite understand why” he asked this question at the time but assured the court he fully understood the rules.
Solomon put to him: “I am right, aren’t I, that the detail of your questions and the fact of your involvement was unprecedented for the SFA when dealing with a change of control application?”
Sir Peter said: “It was unprecedented in respect of change of control but the degree of contact I already had with 3aaa was unprecedented compared to any other provider apart from Learndirect.
“This case raised completely unprecedented issues about the extent to which the future of the business would be impacted by the important changes to the levy. There were lots of unprecedented things.”
Banter
Solomon also pressed Sir Peter on an email from Mike Keoghan, who was the then deputy CEO of the Institute for Apprenticeships, that was first told to the court last week.
The email had the subject “how’s yer [sic] blood pressure?” and informed him of cash worth half a million pounds which Peter Marples and other co-founder Di McEvoy-Robinson each took out of 3aaa, other profit they and the business made, and that 3aaa described itself as “highly cash generative” in the same year the company nearly went into administration which forced Sir Peter into accelerating millions to the company.
Sir Peter replied: “My blood pressure is much higher now. Trilantic have renewed their interest in 3aaa. Not surprising when it is so cash generative.”
“Can you explain to the judge why the information he provided had indeed made your blood pressure higher?” Solomon asked.
Sir Peter said: “I was responding with a bit of banter. It was probably a mistake to do so. A point I do recall is when I saw that I was associating it with the results of the KPMG audit. We had concerns about financial insolvency after we suspended payments and what this email suggested was cash had been taken out of the business just before we got to that point when we expedited payment.”
Fireworks email and pre-empting lawsuit
After the refusal letter was sent, Sir Peter wrote in a covering email: “Then we stand back and wait for the fireworks […] my private expectation is that Trilantic will ditch 3aaa at this point because they will feel they have been misled by them.”
Solomon said: “You knew full well that you would cause the deal to explode.”
Sir Peter said he “does not see it like that”. He told the court he did expect there would be a “stormy” reaction but he “genuinely left the door open” by saying to TLP he would reconsider change of control if he received an updated business plan that alleviated his non-levy concerns.
He did think “we would get an adverse reaction from 3aaa”, potentially including a complaint to ministers and “maybe even legal action taken to challenge the decision there and then”.
“I expected it would be controversial so I thought there might be, as I described it ‘fireworks’. It was probably a more emotive term than I should have used but I did expect an adverse reaction,” he added.
Solomon claimed the “truth is that you knew full well that the deal was done. Your letter would cause Trilantic to ditch 3aaa. You wanted to stand back and watch the fireworks because that would give you pleasure”.
Sir Peter refuted this. “That is absolutely not the case. In hindsight it was a bad phrase to use but what I was saying was ‘let’s make sure we’re ready as there may be complaints, there may be legal action’”.
‘I did not resent the existence of private providers’
Solomon put to Sir Peter that he had been heard making “adverse comments about profit levels in the private training provider sector”.
Sir Peter denied having adverse views about profit being made, but added: “If I thought it was excessive, I would generally regard it as a failure of governance.”
Sir Peter told the court: “I have absolutely nothing against profits in the private training provider sector. I have worked for private training provider sector for 30 years.
“I have for many years been supportive of private training providers. I know great private training providers and I know great colleges. I was a big supporter of the diversity of the whole further education and skills sector, both in the way providers worked and also in the case of learners the whole sector was serving.
“I actually spent more of my career working with private training providers”, Sir Peter said and praised the “flexibility, adaptability and innovation” of those providers.
Sir Peter said he had been awarded a lifetime achievement award by the Association of Employment and Learning Providers, adding: “I don’t think they would have done that if they thought I resented the existence of private training providers”.
The trial continues.
