Financial life supports for struggling academy trusts

Delivering education – a fundamental and hugely beneficial service to our society – to the standards we aim to do so in the UK requires large amounts of money. So much so that multi-academy trusts ("MATs") are often responsible for what is essentially a multi-million pound corporation of schools and a variety of other educational institutions. Like businesses, sometimes there just isn’t enough revenue to cover the basic costs of delivering such services and some MATs are finding themselves struggling financially.

In light of the growing number of MATs which are either struggling, requiring a sponsor or have been forced into a re-brokerage of their schools to new trusts, the Department for Education has issued guidance for MATs who are considering submitting a request to the Education and Skills Funding Agency ("ESFA") for financial support in order to protect its pupils' interests and education.

I have summarised the five avenues available for MATS below.

  1. Short-term advance

The aim of this is to enable a MAT to manage cashflow effectively over a 12 month period by offering up to £200,000 in financial assistance.

The ESFA will require a repayment plan which clearly demonstrates that the funds can be recovered in full within 12 months. Where there is concerns or evidence of non-compliance, the ESFA will consider serving a financial notice to improve ("FNtI").

  1. Enabling financial recovery

Funding may be provided in order to secure a return to financial stability within an agreed timeframe where a MAT is in cumulative deficit. There are three bands of funding available: up to £200,000, between £200,000 and £1 million and, in the most severe cases, over £1 million.

The MAT must enter a repayment plan which is agreed with the ESFA and shows full recovery is possible – ideally within 3 years.

  1. Building capacity

The strategic aim in these cases is to prevent financial failure at a MAT with a projected cumulative deficit that cannot otherwise be achieved through unfunded options. Again, there are three bands of funding and the MAT must have an ESFA-agreed repayment plan.

To be eligible for this level of support, the MAT must not be eligible for funding from their local authority falling rolls funds and must have a reliable pupil forecast which demonstrates a return to sustainable pupil numbers.

  1. Facilitating transfer – financially triggered

Funding is also available to secure a rapid transfer of academies out of a closing trust into a trust that will stabilise the school and protect pupils' interests; otherwise known as a rebrokerage.

As expected, the eligibility criteria is slightly more comprehensive. The regional schools commissioner (RSC) should identify an appropriate academy trust/sponsor and it should be recognised that standard transfer funding is not sufficient enough to stabilise the transferring academy. In addition, the incoming MAT must agree to a repayment plan for the recoverable elements of any funding, whilst the outgoing trust must provide full financial reporting to meet assurance requirements when being wound up.

  1. Facilitating transfer – educationally triggered

The final category of funding should be used to protect the financial stability of an incoming MAT, enabling prioritisation of school improvement. The eligibility criteria is similar to the above transfer funding, however further conditions will be imposed by the ESFA. Specifically, the ESFA may require the incoming MAT to undertake integrated curriculum financial planning and request the latest internal audit findings from the outgoing trust, alongside enhanced financial monitoring.

Important considerations

It is important to highlight that in return for any of the above types of funding the ESFA is likely to impose any number of conditions upon the MAT. These may include reduction of excessive salaries and staff re-structuring exercises, ESFA observation of Board meetings, deployment of a school resource management adviser and requirements to hold annual general meetings (AGMs) of members.

In some cases, the ESFA may even apply security by way of a Qualifying Floating Charge, which could lead to the MAT becoming insolvent if the ESFA takes enforcement action.

This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.