We echo and support the comments made in an alert issued by the Higher Education Funding Council for England yesterday (27 October 2011) as set out below which echoes the counsel given in our briefing "Survival of the Fittest" (available on request):
"In recent press coverage about the possibility of charitable providers of higher education ‘going private’, one report predicts the takeover of an English higher education institution (HEI) by a private equity company ‘within six months’. However, the Charity Commission’s response to the Department of Business, Innovation and Skills technical consultation makes it clear that this risks breaching a fundamental feature of charity law—that a charity’s assets must be applied solely for charitable purposes.
A charity cannot just ‘stop’ being a charity. Its trustees may convert some or all of its operations or assets into cash (by selling them) but they must continue to use that cash to deliver their charitable purpose. The assets of a charity are not just physical, but include intangible assets such as brand, reputation and potential – the charity’s ‘goodwill’. To maximise the value of any assets sold, trustees are obliged to take independent professional advice. Goodwill is not easy to value, but the terms of sale may need to include ‘overage’ provisions to secure for the charity a stake in foreseeable, but hard-to-quantify, increases in value.
To reduce the risk of selling at an undervalue, HEIs’ trustees will need to consider such things as the value (and the potential for increase in the value) of degree awarding powers, of university or university college title, and the development value of land. They will also need to be alert to conflicts of interest – particularly if senior managers advising the trustees during sale negotiations are likely to continue being employed by the (previously charitable) organisation.
The trustees will also need to consider how they will apply the sale proceeds in furtherance of the institution’s charitable purpose of advancing (higher) education for the public benefit. This might include funding research and/or providing student bursaries. In turn this may need changes to the objects or powers (with Charity Commission approval) in its constitution.
We will continue to keep this issue under review and provide updates when appropriate."
We think that one further important point to note is that it should not be taken from this that degree awarding powers can be sold or transferred. A grant of degree awarding powers is made to a specified body following a rigorous application procedure.