The OfS has introduced a new registration condition relating to student protection, designed to enable it to intervene more readily and effectively in cases where a provider is at material risk of closure and market exit. There has of course already been one example of large scale market exit in the case of Greenwich School of Management (GSM), but that had not made it on to the register by the time it went into administration. Nevertheless, one assumes that the OfS will have drawn on its experience of that case in developing the new registration condition.
What does the new condition say?
The new condition is engaged where the OfS reasonably considers that a provider (other than a FE college or designated institution in the FE sector) is at risk of fully or substantially ceasing to deliver higher education. If that is the case, then the OfS will require the provider to implement “student protection measures”. These are the measures that the OfS reasonably considers are proportionate steps to mitigate the risk to students of disorderly market exit and include:
- teach out arrangements;
- student transfers;
- information and advice for students;
- refunds and compensation arrangements; and
- appropriate exit awards.
The OfS may allow the provider to develop its own student protection measures or may impose appropriate measures itself. It may also direct the provider to take, or refrain from taking, consequential or related action, for example in relation to the deployment of staff or the need to consult a registered insolvency practitioner.
In deciding if a provider is at material risk of market exit, the OfS will consider all the relevant facts, including whether there is evidence that a provider may not have access to sufficient funds to meet its day-to-day costs and any other liabilities due over a 12 month period. Where a provider’s ability to meet this test is based on it successfully securing additional borrowing or investment or restructuring the business or on the acts or decisions of a third party, the OfS will make a judgment about how likely these steps are to be delivered in practice.
The OfS will normally engage with and may consult with the provider before issuing student protection directions. It may also decide to order the provider to publish its market exit plan or the student protection measures it is putting in place, if it considers it necessary to do so to protect the interests of current and future students.
What are the implications of the new condition?
Providers who find themselves in financial difficulties can expect significant intervention by the OfS, including, it appears, some fairly granular directions around how they should operate. The condition allows the OfS to, in effect, second judge the provider’s governing body’s own judgments about its financial viability and sustainability. This may be a complicated assessment, especially for providers who are part of complex groups or have unusual ownership models.
Where the OfS determines that student protection directions are necessary, it has a broad discretion to determine what they should be, which leaves open the question of what happens if the provider disagrees. Although the Higher Education and Research Act provides specific mechanisms for providers to challenge enforcement action (such as a monetary penalty or deregistration) for breach of registration conditions, it does not stipulate any specific procedure for challenging the OfS’s judgments about action that falls short of enforcement action. Therefore, any challenge would likely be by way of judicial review, where the courts will generally defer to the judgment of the primary decision-maker in matters of substance. So providers may not have any meaningful route to challenge the OfS’s decisions either in relation to financial viability but also in relation to the specific steps the OfS requires them to take.
It is also not clear how the new registration condition will interact with other legal obligations that providers may be subject to. For example, in an insolvency situation, Will refunds and compensation to students be seen as preferring one set of creditors over others? What might be the view of banks and lenders or suppliers of key services and goods to the fact that the provider has been made subject to such directions? Might they, for example, consider ceasing to provide credit, services or goods which in turn compound the provider’s difficulties? Might directors and trustees of providers be vulnerable to personal liability if they feel compelled to continue to trade or operate in a manner that is inconsistent with their duties to act in the best interests of their organisations?
For providers, the new condition reinforces the need to take timely, firm and measured action to ensure financial viability, including considering restructuring, turnaround measures, mergers and collaborations. However, the questions above highlight the very real challenges that the OfS will face in intervening to protect the interests of students in cases of provider vulnerability. Act too slowly and the damage will already be done. Act too early and the intervention may precipitate the very thing the condition is designed to avoid: a disorderly exit from the market.
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