What happens when an alternative provider falls into administration?

Last week London College of Contemporary Media (LCCM) entered administration. Its validating body – the Open University – was keen to find a new provider to take over course delivery for its c.250 students. Despite arrangements having been made with a compatible partner, a surprise closed sale by the administrators to Global University Systems (GUS) went through last thing on Friday. The whole thing was over in a matter of days.

But what happens now, and is this the best thing for the students of LCCM? How can a provider of higher education be allowed to collapse apparently without much warning, when strict financial checks are in place? What does a change of ownership mean for the validating body, government and regulators, and what say can any of them have over this?

Note: this article has been updated to include a statement from LCCM

Acting in whose interest?

When a business is put into administration, a licensed insolvency practitioner takes over. All pending legal action is paused, and the business will typically be reorganised (which may include the sale or closure of part or all of the company) so that debts can be paid and the company can continue as a going concern.

The challenge of studying at an education provider in administration is that the duty of the administrators is to act in the best interest of creditors and not the students. This means that administrators will be keen to repair the financial aspects of the business: for example getting a good sale – or indeed any reasonable sale – as quickly as possible, to ensure that the creditors get some compensation for the debt owed and the business can continue.

For an education provider, there will naturally be a keenness to retain existing students – and recruit more – as this makes the provider more viable. But the danger is that this may become a secondary concern.

So who is there to protect the student interest? In theory, the validating body should have a student protection plan in place for these situations to implement in emergencies. In the case of LCCM, it’s the Open University – its HE course validating body – which had initiated these plans and put provisions in place with the Academy of Contemporary Music (ACM), a well-established alternative provider in London that the OU approached for help.

However, at the last minute, the administrator sold LCCM to Global University Systems (GUS) – the owners of Arden University, the University of Law and the London College of Contemporary Arts.

Changing hands

When a provider has a change of ownership, it is expected to reapply for course designation with the Department for Education, which can take time. Normally, DfE requires at least three months notice. However according to DfE guidance, if the change of ownership happens to prevent an organisation entering administration, it can be awarded temporary designation while new owners apply for re-designation. It is our understanding that this process is in place.

The Open University told us that it is aware that LCCM was in financial difficulties and had “been involved in seeking a suitable solution which would safeguard students.” As had been hoped, “this means that all of LCCM students, including those on OU validated courses, will be able to continue to study on their current qualifications within their current environment. We do not anticipate this will involve any disruption of study to our students and we are very pleased to have a solution in place so quickly.

Thus, LCCM students aren’t adversely affected by the financial failings of their provider and still have access to student loans while the new owners apply for designation. However, there is no guarantee the new owners will wish or be able to seek permanent designation for student support.

Global University Systems told us that “the acquisition will enable GUS to support LCCM through its next phase of growth and ensure students are able to complete their courses without interruption through LCCM’s existing collaboration with the Open University”.

This might be good news for existing LCCM students, but they await further details about how this will work out in practice.

ACM’s solution – to take on responsibility for the provision with the OU – might have made things clearer. The college had put plans in place to take over LCCM’s courses in a matter of days, only for this to be suddenly dropped as a result of a sudden sale, in which they weren’t invited to bid. Had students been moved across to ACM, their courses would have been validated by Falmouth University rather than the Open University. ACM is questioning the motives behind the sale and whether the students’ interests are being protected.  

What is the role of the regulator?

The last few days have been messy. For students to access loans, and thus public money, providers need either their own degree awarding powers or to have their courses designated by the Department for Education.

DfE make this decision based on information and advice from a range of sources including HEFCE and QAA. HEFCE told us “We have no regulatory locus in relation to details of provider ownership or purchase – our overriding concern is the protection of students within the terms of our remit.” And that remit is limited to an advisory role.

In the future, OfS will have direct power to demand that it is notified of such incidents and act accordingly. Early warnings would come via a combination of real-time data and reportable events. It would also perform an assessment of potential risk – including financial – at the point of registration.

An institution that currently has course-level designation may decide to seek only basic level registration with OfS, meaning that only limited information needs to be shared with the regulator. But OfS will have the power to step in where an issue arises with validation, either by brokering a new validation arrangement or by taking on the validation itself.

How did it get to this?

To gain designation, providers have to pass financial sustainability, management and governance (FSMG) checks that are outlined in published criteria – these are assessed by HEFCE on behalf of DfE. Providers requiring educational oversight, for Tier 4 sponsor status, have FSMG checks delivered by QAA on behalf of the Home Office. LCCM had both designation and education oversight right up until it was placed into administration, meaning it had passed two FSMG checks.

LCCM’s accounts show a complex financial history; an ongoing operating loss, disputes with HMRC and multiple restructures. In 2014, there was a delay to its re-designation that impacted on its 2014/15 recruitment cycle. Furthermore, in November 2016, QAA delivered its FSMG checks as part of LCCM’s education oversight, in the report these were found to be “satisfactory”. A significant paper trail is required for these checks, and they are delivered, in QAAs case at least, by accountants.

So how did a provider which had passed all these checks so recently, go on to financial failure? HEFCE only became aware of LCCM being placed into administration the working day before it happened. It told us that “it is for the Department for Education to determine whether or not an alternative provider’s courses are designated in accordance with their published criteria and guidance. In so doing, the Department takes into account a range of information provided to it by HEFCE, the QAA and others.

We contacted DfE for a comment, but they did not offer a response before this article was published.

What happens now?

As things stand, all students at LCCM will be able to continue their courses which will be delivered – at least in the short term – by the same staff in the same buildings under the same terms, and will lead to being granted the same awards from the same validating body. This is a sign of a system that, even given issues of this scope and suddenness, is broadly working for the interests of students. Although as more details emerge, we’ll be able to make a more nuanced judgement.

However, not everyone is delighted with the outcome so far. The sale of LCCM to GUS was done behind closed doors – there would likely have been many other providers keen to buy the rights to a small but content student body in very shiny new purpose-built premises near the Shard. Creative media provision in London is big business, and GUS – which also own the London College of Contemporary Arts – now has a very large slice of it.

The case also raises big questions about the state of the regulatory system and its authority over this part of the sector. If alternative providers of higher education are allowed to fail and change hands at such breakneck speed, with such limited oversight, the enhanced risks to students, taxpayers and the HE market become ever more stark.

Since publication, we’ve been sent a statement from LCCM:

“As a small provider delivering expensive specialist programmes, it has been LCCM’s intention for some time to join with a larger organisation, in order to secure our future development and expansion.  During 2017, the college’s board of governors held discussions with a number of possible partners, including GUS which subsequently emerged as the favoured option.  From November 2017 the college thus entered into formal negotiations with a view to becoming part of the GUS group.  It is in the nature of such things that they end up more protracted than originally envisaged and the process was still incomplete when the college was put, briefly, into administration. LCCM joining the GUS group was, therefore, not a last-minute action but rather the realisation of a strategic objective.

The facts are that LCCM students will continue and graduate in the fullness of time from the same programmes, with the same validating body, taught by the same staff, in the same buildings and with the same principal and immediate management team.”

6 responses to “What happens when an alternative provider falls into administration?

  1. It’s interesting in this case that the provider doesn’t have DAPs, which to some extent safeguards the interests of students as evidenced by the OU taking responsibility. I wonder how different things would be if they were more autonomous in this sense

  2. This does raise some key questions for OfS as to how it will manage its new responsibilities. The good news is that ‘approved’ providers should get a relationship much more akin to the one that publicly funded providers had with HEFCE. Releases of Board papers show their active consideration of financial data for institutions they were worried about. With those with high gearing (see other insolvency news today) HEFCE have required active notifications from providers, particularly about the terms of their borrowing and cashflow.

    This will be a big change for some ‘approved’ providers, including, I assume, GUS whose group structure and overseas ownership make public scrutiny quite complex.

    However, for every reassurance that OfS offers about their scrutiny of ‘approved’ providers, a further question must be raised about ‘registered-basic’ and non registered providers. ‘Approved’ providers are those with their own course designation and/or tier 4 visa registration. Providers who are only franchising have none of that regulation. Does all the responsibility fall on the university whose franchising the courses? If so, universities may look even harder at their risk appetite – which may mean fewer are willing to take it on. Which is just the opposite of what Jo Johnson (with his burger analogies) wanted.

  3. Something that appears to be missing from the brand new HE regulatory regime is a clear regime for provider insolvency. HEFCE appears to have stepped in in the past when the odd university got into trouble. Providers will need to show that they are financially viable and sustainable to join the register and to produce a Student Protection Plan but it is not altogether what OfS will do if a provider runs out of money. Fining them for breaching the condition or suspending their registration might make things worse – particularly if this information is made public. Approved providers that are companies are covered by commercial insolvency rules. Approved providers that are English FE colleges are due to be covered by a special administration regime from the end of 2018. At the same time as the government pushed through its Higher Education and Research Bill through Parliament with hundreds of clauses, it pushed through an FE bill with very few that was designed to provide more legal certainty for FE corporations. No-one from the FE side of BIS/DfE could explain why similar rules weren’t under consideration in HE. Unfortunately it may taken an institution in trouble to see whether this is a problem..

  4. There are many questionable assumptions put forward in the above article. The statement from
    Lccm clears up one of the most spurious claims made regarding the sale to GUS being ‘a last minute deal done behind closed doors’. The discussions that went on between the OU and ACM wereclearly a ‘plan B’ and would have been highly disruptive to students learning. How could moving all of LCCMs students to another provider have in any way been preferable to finding a solution that keeps them on the same courses with the same tutors?

  5. as a parent of a 2nd year student we have never been made aware of any of this even though we have invested £20k thus far in tuition fees! I am really disappointed by this

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