Difficult decisions ahead for universities in financial distress

Commenting on this week's report in The Times that the Government is seeking to recruit a policy expert on higher education financial sustainability, Lindsey Cooper a restructuring partner at RSM said: 

'With deepening concerns around the sustainability of a number of universities the creation of this role suggests that the Government is taking the threat of insolvency seriously. As a result, it is increasing its resources to ensure that it better understands the impact of policy changes on the financial position of the sector.

'Whilst the precise remit of this position is not entirely clear it appears to be seeking to bridge a gap between the policy makers and the regulator that, given the ongoing review of post 18 education and funding, is pivotal to ensure that the market operates sustainably, efficiently and effectively.

'The lifting of the student cap and the introduction of tuition fees have led to a more competitive landscape in higher education. Some universities have invested heavily to support planned growth, but with uncertainties over future student numbers and further income stream pressures on the horizon, those institutions which have over-extended themselves will need to take some difficult decisions to stay afloat.

‘At one time, the idea of a UK university going bust would have been unthinkable. But a natural consequence of competitive market forces is that while some will thrive, others will fail. The Office for Students (OfS) has made it clear that it will not provide financial bailouts to universities and is keen to encourage financial discipline within the sector.

'Unlike the further education sector where there is a special administration regime designed to protect students when a college goes under, there is no such equivalent for higher education.

'Many of the traditional Universities are statutory bodies governed by Royal Charter and as such there is no mechanism for them to be formally wound up through an insolvency process, although they could wind down and cease to operate or seek mergers with other institutions. The newer post-1992 universities may be limited companies meaning the normal insolvency regime would apply.

'While we don’t anticipate many formal university failures, there is a strong possibility of more merger type activity within the sector that we have seen in the further education space.'