Insolvency & Closure

Educational institution insolvency differs fundamentally from commercial business failure because the primary obligation needs to be towards students and their continuing education. This creates unique responsibilities requiring specialist knowledge and sensitive management that balances legal requirements with educational welfare and community impact.

Student protection obligations include:

• Ensuring continuity of education provision
• Sourcing alternative provisions
• Preservation and future accessibility of academic records
• Pastoral care to support students through the transition

These obligations often override normal commercial considerations and require careful coordination with regulatory bodies to ensure compliance throughout.

There are also a number of regulatory compliance issues to be considered including ensuring educational standards are maintained until final closure, the posting of statutory notifications to concerned regulatory bodies, consumer protection law particularly for higher education establishments, and public accountability for those institutions receiving government funding.

This complexity requires expertise not only in commercial insolvency practice but in the unique aspects of educational insolvency cases specifically.

Insolvency Options for Educational Establishments

When an educational institute becomes knowingly insolvent, there are a number of options which can be explored. The most suitable solution will depend on a number of factors including its financial and operational position, the appetite of its senior figures to embark on a restructuring process, and the realistic potential for ongoing viability in an increasingly competitive marketplace.

Formal insolvency procedures include:

• Administration

  – Licensed insolvency practitioners will be appointed to take control of the school, college or university with the aim of achieving one of the three statutory purposes of administration:

1. Rescuing the establishment as a going concern
2. Achieving better returns for creditors as a whole than would be possible if the establishment entered liquidation without first being in administration
3. Realising property in order to make a distribution to one or more secured or preferential creditors

While in administration, the appointed insolvency practitioner will work to devise and implement a strategy to either stabilise the establishment for ongoing continuation, or else ensure an orderly winding down of its operations.

The timeline of an administration process depends on a number of factors, including the complexity of the problems and consequently the chosen solution, the realistic prospects for rescue, going concern sale opportunities, and professional transition management.

• Creditors’ Voluntary Liquidation

When continuation becomes impossible and closure is inevitable, shareholders can pass a resolution to cease operations and wind up the affairs of the school, college, or university.

Voluntary liquidation focuses on asset realisation to maximise creditor returns, facilitating employee claims for redundancy, ensuring statutory compliance in all legal obligations, and achieving an orderly wind-down which minimises stakeholder disruption as far as possible.

When it comes to the liquidation of an educational establishment, however, additional considerations need to be factored in. These include ensuring the preservation of student records and future access, the facilitation of ongoing student education provision, and regulatory body compliance.