Third college to go through FE insolvency regime owes £8m

The country’s smallest sixth form college has been forced to close

The country’s smallest sixth form college has been forced to close

The country’s smallest sixth form college has become the third college to ever go through the further education insolvency regime, closing with £8 million of debt.

St Mary’s College in Blackburn shut its doors to students and staff this summer after it failed to find a viable merger partner.

The Catholic-run college, which had been open for almost 100 years, became financially unsustainable due to repeated years of falling student numbers, and has been propped up by emergency government funding since 2020.

Accounting firm RSM UK has been appointed to handle the insolvency and published its first report on the process last month.

A “statement of affairs” revealed that the college owes £8.2 million to six creditors. The Local Government Pension Scheme is owed most of the debt – £5 million – while Barclays Bank is owed £2.8 million. The Department for Education is also one of the creditors, owed £62,000.

The college’s property is currently on the market for an undisclosed fee to generate funds to repay the creditors. But the insolvency practitioners’ report suggests a book value of just £402,795.

Asked how likely it was that the creditors will be repaid in full, joint liquidator Diana Frangou told FE Week: “Any distribution to creditors in the liquidation will be made from asset realisations which are currently in progress and hence uncertain.”

The first colleges to go insolvent

The further education insolvency regime came in force in January 2019, from which point it was made possible for colleges to fail and be placed into an insolvency process for the first time.

Scandal-hit Hadlow College was the first to go through the process later that year after an investigation from the FE Commissioner uncovered how the college ran out of money through leadership and governance failures. There were also claims of financial irregularities which led to investigations into the former management.

Hadlow’s sister college – West Kent and Ashford College – was the second to go through the FE insolvency regime later in 2019. Between them, the two colleges went under with debts of almost £150 million.

Department for Education officials previously revealed that the cost of putting the two colleges through the insolvency regime cost the taxpayer around £60 million. Most of this related to capital costs that needed to be spent to bring Hadlow’s and West Kent’s estates (which had been left in “very poor condition”) up to “reasonable standards” to be sold or taken over by other colleges.

St Mary’s College’s cause of insolvency is different to Hadlow’s and West Kent’s. It was first warned in 2016 of its deteriorating financial position and urged at the time to find a merger partner or academise.

It continued to survive on its own largely thanks to its higher education income and its commercial pre-school nurseries, but its ability to continue doing so came to a head in 2020 after student numbers failed to improve. Against a capacity of 1,250, there was only 653 students on roll at the time of an FE commissioner visit in 2020.

Growth predictions wrong

The FE Commissioner’s intervention report said “inaccurate growth predictions” at the college, which led to “over-optimistic expectations for student recruitment”, were the primary cause of financial failure.

A structure and prospects appraisal process was subsequently launched and invited potential partners to express an interest in partnering with St Mary’s, but no viable partner was found.

Kate Hollern, the MP for Blackburn, said: “The loss of St Mary’s College, an institution that has been part of our community for so long, was cause for great sadness. The financial pressures and dwindling student numbers the college suffered under were, of course, unfortunate.

“[The college] was a place where students felt empowered to fulfil potential and it boasted a good academic experience.”

The Department for Education told FE Week that it provided St Mary’s College with the “minimum level of emergency funding” to “protect learners and enable them to complete their courses”, but refused to reveal the total figure.

Frangou said an orderly wind down of the college completed in August, with all remaining 225 students completing their studies.

She said all staff employed by the college were made redundant on July 31, 2022, and they all received their “contractual and statutory entitlements upon redundancy in full, and therefore do not have claims in the liquidation”.

College management also “ensured all suppliers were paid in full prior to the liquidation”.

Frangou added that protecting the students and minimising disruption to their studies has been the “paramount objective of the college and the Department for Education” and to ensure this, a number of college staff were retained by the liquidators on a subcontract basis and funded by the DfE to guarantee that exam results could be received “in the normal way”.

The Department for Education said its current expectation is that “only costs directly related to learner activities, outside of the statutory duties of a liquidator required post-liquidation will be funded by the DfE”, although it will not release these figures.

One of the most controversial aspects of the Hadlow and West Kent insolvencies was the costs charged by the insolvency practitioners BDO, which reached £6 million and was described by the DfE’s permanent secretary Susan Acland-Hood as “gut-wrenching”.

RSM would not reveal its time costs and charge out rates, stating that these will be included in its first annual report a year after the liquidation began. Frangou said RSM’s fees and costs are “subject to approval by creditors and payable from net realisations from college assets”.

There is no suggestion of impropriety from St Mary’s Colleges former leaders or governors, but RSM said that as with all insolvencies, there is a “duty to investigate and submit a report on the conduct of the directors to the Insolvency Service within three months of the appointment”.

RSM said the report, which is “confidential”, will be considered by the Insolvency Service who will “take any action it sees fit”.

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