Private and Independent Schools Experience

Our Experience with Private and Independent Schools

The fee-paying education sector is currently one of the UK’s most embattled, with several significant challenges pushing some private schools to the brink of insolvency. 

Recent research suggests that one in four parents are considering pulling their child out of private school due to fee increases and the threat of VAT. Those threats are compounded by other issues, such as rising operational costs, a shortage of financial reserves and the growing number of high-performing state schools.

Although some of these challenges are nothing new, they are contributing to a perfect storm in the sector that’s causing a new wave of independent school closures. 

What should I do if my private school is struggling?

If you are involved in the management of an independent or private school that’s struggling financially, there are several rescue and recovery options available to you. The key is to seek professional advice at your earliest opportunity, as the potential solutions available will narrow as your position worsens. 

If your school is insolvent, which means it can no longer pay its bills when they’re due or its liabilities outweigh its assets, you are legally obliged to protect the interests of your creditors (parties you owe money to). In practice, that means seeking the assistance of an Insolvency Practitioner immediately. They will assess your situation and advise you on the best route forward. 

Business rescue and recovery options for private schools

Despite the current challenges, if your school has a viable business model and a healthy and profitable trading history, there’s no reason why, with a few tweaks, it cannot be saved using the solutions below. 

Capital injection or refinancing

If your school is fundamentally sound but is suffering from a lack of working capital or cash reserves, there may be relatively simple steps you can take to raise the funding you need. 

Many private schools are asset-rich but cash-poor, so there may be the potential to sell a non-essential asset such as property, land or equipment, or to use an asset as collateral and raise finance against it. That could give you the cash you need to meet your short-term liabilities and put a restructuring plan in place for the future.      

Another option is to refinance the borrowing you already have to free up the capital you need to address the issues the business is facing. Securing new funding can be challenging in the current climate, particularly if your school is struggling. Working with a business recovery expert can help, as they understand all the available options and can present your application in the best light.    

Company Voluntary Arrangement (CVA)

If you are indebted to your bank or have tax arrears you cannot pay, it’s worth contacting your lender or HMRC. You may be able to negotiate an informal repayment plan that helps to stabilise the school in the short term while you explore ways to increase your revenue. 

However, if your company is already insolvent and has multiple debts it cannot pay, a legally binding repayment plan called a Company Voluntary Arrangement (CVA) could be your best option. 

A CVA is a formal insolvency procedure, so you’ll need a licensed Insolvency Practitioner to set it up. They will help you draw up repayment proposals to send to your creditors. If 75% of your creditors vote in favour of your proposals, you’ll be able to pay what you owe via a single monthly payment over a typical period of three to five years, and some of your school’s debt may be written off.     

Administration

Another option for an insolvent independent school is to put into Administration. When you enter Administration, it kick starts an eight-week moratorium period which gives you legal protection against your creditors while an Insolvency Practitioner works to formulate a recovery plan. 

The ultimate aim is to put the creditors in a better position than they would be if the school was immediately liquidated. They can do that by restructuring the business operationally or financially, selling assets or seeking new owners. 

Closing a private or independent school via liquidation

The school’s financial problems may be so severe that it’s no longer a profitable or viable business. In that case, to comply with your legal duties and protect the interests of your creditors, you may need to close it down.  

You can close an insolvent private school by entering it into a formal process called a Creditors’ Voluntary Liquidation (CVL). You must appoint an Insolvency Practitioner to act as the liquidator. They will value and sell the school’s assets and use the proceeds to repay its creditors as far as possible. 

Any debts the liquidator cannot repay will be written off and the company will be struck off the official register of companies and cease to exist. A benefit of this approach is that being proactive and closing the school voluntarily reduces the risk of subsequent penalties for the school’s directors and trustees.

How Begbies Traynor can help

It can be very challenging and stressful when your private or independent school is struggling, particularly when you think about the potential impact on pupils and staff. Thankfully, you can relieve some of that pressure by contacting an experienced team of licensed Insolency Practitioners at the first sign of a problem.

At Begbies Traynor, we provide honest and impartial company rescue, recovery and insolvency advice and guide you throughout the process. Call our expert team today for a free, same-day consultation or to arrange a meeting at one of our UK offices.