Higher Education needs to consider all options from mergers to insolvency in the current climate

The recent report from the Institute for Fiscal Studies paints a fairly gloomy picture for Higher Education and identifies that up to thirteen establishments may be at risk of insolvency. This has been driven by factors including a predicted fall in overseas student enrolments, increased pension contributions and loss of income from student accommodation brought on by the coronavirus crisis. 

There is some talk of a government bailout as being a potential solution for these universities. However, all solutions must be considered such as mergers, greater collaboration, or even simply winding down if the institution is not viable, and some hard decisions must be taken.   

In May the Department for Education’s package of support measures for the sector also included a statement that it would be working with the Treasury and other government departments to develop a restructuring regime.  This implied that some form of formal insolvency regime was being considered for the sector, similar to what is already available for Further Education. 

Newer post-1992 universities are likely to have more restructuring options open to them if limited companies, including the new Corporate Restructuring Plan which came into force on 26 June 2020 and is a Companies Act process rather than an insolvency one. However, many of the traditional Universities are statutory bodies governed by Royal Charter and there is currently no mechanism for them to be formally wound up through an insolvency process.

Lindsey Cooper, partner, RSM Restructuring Advisory said: ‘An insolvency regime for Higher Education would be welcomed, as it could be used as a potential rescue tool when other options have been exhausted. The newer post-1992 universities may be limited companies and can use the existing insolvency regime, with procedures aimed at rescuing the whole or part of the entity. For older universities, there is no mechanism for them to be formally wound up through insolvency, although they could wind down and cease to operate, or look to merge with another institution.  

‘On balance we don’t anticipate many universities will fail but there is a strong likelihood of more merger type activity within the sector, as has been seen in the Further Education sector. Difficult decisions need to be made sooner rather than later to ensure financial sustainability of our higher education sector.’  

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