Rescue, Recovery, and Closure Options for Private Schools

Private schools encounter several challenges that can lead to financial troubles, including increased competition from state schools, growing operational expenses, and insufficient financial reserves. 

These factors often result in a poor commercial situation for many such institutions.

If you’re managing a private school facing insolvency, there are likely several avenues available to you. It’s crucial to act promptly and prioritise seeking professional insolvency support in such situations.

You must make sure that your actions do not worsen your creditors’ situation and that you avoid accusations of trading while insolvent.

Before examining potential options for an insolvent private school, it’s important to consider sector-specific issues that may have contributed to this unfortunate situation. 

For instance: 

1. Improving the state schools 

State schools are enhancing discipline, providing diverse timetables, and achieving better exam outcomes. Consequently, parents might opt to enrol their children in top-performing local state schools or sixth-form colleges instead of paying for private education.

2. Increasing private school fees

Increasing fees, along with the absence of rises in parental wages, may have impacted parents’ choices against private schooling. Managing financial strain becomes tough for schools facing difficulties, especially when they strive to meet parents’ lofty expectations.

3. Managing expenditure 

Older private school structures often demand substantial investment for renovations and upkeep. 

Additionally, the ongoing costs for utilities like heating and lighting tend to be high due to the building’s characteristics. Managing these expenses proves challenging. Despite private schools usually owning valuable assets, they often lack ready cash and have limited working capital available.

How do winding up a private school via liquidation processes? 

If the school’s financial troubles have reached a critical stage, you might need to consider strategies for gradually closing down the school’s activities and addressing its outstanding financial obligations in a systematic and legally compliant way.

Winding up an insolvent school can happen through a formal procedure called Creditors’ Voluntary Liquidation (CVL)

It’s a choice initiated by the director, enabling the insolvent company to close down while handling its unpaid debts. Only with the assistance of a licensed insolvency practitioner can a company go through a CVL, where they take on the role of the company’s liquidator.

In the process, all the company’s assets will be identified and sold. The money from the sales will be used to pay off the company’s debts as much as possible. 

After this, the company will be removed from the register of companies at Companies House and will no longer legally exist.

A guide to how I rescue my Private School

You must take decisive action to avoid your school being liquidated. Seek professional insolvency help at the first sign of financial trouble. Even if the school is already insolvent, restructuring and financing plans can still be implemented if suitable.

1. Administration 

Placing the school into administration provides an eight-week period of relief to devise a recovery plan. During this time, creditors cannot take legal action against you, giving you a crucial ‘breathing space’ to plan restructuring or obtain essential extra funding.

2. Additional Finance

If your school has valuable assets, like property, land, or equipment, you might secure financing based on them—a critical lifeline when banks refuse to lend. Introducing a lump sum through asset-based finance helps meet immediate obligations, create a restructuring plan, and proceed with greater confidence.

3. Company Voluntary Arrangement

A Company Voluntary Arrangement, or CVA communicate with creditors to extend the period for paying a portion of the school’s debt. A licensed insolvency practitioner (IP) negotiates with unsecured creditors, with 75% (by value) needing to approve the proposal for it to proceed.

Additional factors to consider for insolvent private schools

Be mindful while communicating with stakeholders 

When communicating, especially with parents, the timing is crucial for the school’s survival and success. If news about insolvency spreads, there’s a risk of a mass exodus of pupils, making any restructuring or recovery plan futile.

Seek professional insolvency advice 

As a director or trustee of an insolvent private school, it’s crucial to seek professional insolvency advice as soon as you realise the school is insolvent. 

Seeking this advice will not only help you understand your options for improving the company’s situation but also enable you to evaluate potential personal financial risks. This includes assessing whether you might be personally liable for any of the school’s debts.

How Vanguard Insolvency can help you? 

Insolvency presents a complex and challenging situation for any private school, with concerns about pupils’ education and staff redundancies. Seeking professional insolvency advice at the first signs of financial distress and cash flow constraints is crucial. It gives your school the best chance of overcoming its problems.

At Vanguard Insolvency, we specialise in corporate recovery, insolvency, and finance. Our expert team assists company directors, shareholders, and trustees in navigating various challenges that jeopardise the future of their businesses. Contact us to arrange a free same-day consultation. With over 100 UK offices, we’re here to help.