Introduction

With a double dip recession just behind us, there remains a concern about the effect our straitened economic times might have on the independent schools sector.

Collaborative working

For some schools collaborative working arrangements may offer a way forward that keeps the school independent while reducing the costs of operations.  Collaborative working allows organisations to retain their independent legal identities, but save costs by working together on operational or support activities.

Administrative or back office functions are capable of being shared over quite wide geographical distances; schools do not have to be within any group structure to do so and it is perfectly possible for otherwise unrelated schools to provide services to each or enter into share purchasing arrangement.  Sharing teaching and other front line services is usually more subject to the practical constraints of distance.

There is usually no legal reason why services and facilities cannot be shared on commercial terms.  Where the provider school is a charity with general objects for the advancement of education there is no reason why the terms should not include an element of subsidy.  In any event arrangements should be appropriately documented to cover the level of service, price, payment, liability and other matters.

Mergers

Nonetheless, a few institutions may find themselves unable to continue independently as a going concern.  The interests of their stakeholders may be better served by seeking a merger with another school.  A merger can be effected in a number of ways including two or more schools transferring their property and assets into an entirely new entity or one school taking over the business of the other.

A merger is no small undertaking and requires careful management in both fiscal and reputational terms.

Due diligence and practical considerations

When considering whether to merge, governing boards must act prudently and in the best interests of pursuing their charity's objects.  The risks and benefits of the merger must be clearly established and considered.  Each party should only go ahead with the merger if it believes that to do so would be most likely to achieve its charitable objects.  Careful consideration must be given to those objects: a charity established to run a particular school in a particular place will have different considerations from a charity for the advancement of education expressed in broader terms.  Particularly in the second case governors must consider that their duty is to apply the assets of the charity for public charitable educational purposes not necessarily only to see their own school prosper.

Due diligence steps to take will include:

undertaking a detailed costs benefit analysis and suitable commercial, financial and legal due diligence investigations;

determining what assets, liabilities and property are to be transferred, and whether any is held on restricted trusts which may prevent assets or property being merged or sold;

ensuring strict compliance with employment regulations if any redundancies are contemplated; and

assessing the practical factors which may have a bearing on the initial and future catchment areas, depending on whether they are boarding or day schools, such as geographical location, demographics and local authority planning developments.  

Stakeholder Interests

Trustees must not underestimate the effect that parent power might have on a merger.  It is increasingly common for affected parents to band together to take legal action to seek to prevent mergers or closures.  Trustees must therefore carefully consider how to communicate with parents and manage their expectations.  Keeping the confidence of parents is crucial.  Long periods of uncertainty over the future of school can accelerate decline.  It is therefore essential to ensure that negotiations are conducted swiftly and confidentially.

Where a rescue situation has arisen the time available for due diligence may be very limited.  Time is invariably of the essence to avoid parents and staff drifting away.  In this type of situation it may be possible depending on the form of the rescue target to get control of the to-be-rescued school in a very short timescale - in our experience as little as a few working days - but without taking on all the liabilities of the school to be rescued and without the adverse consequences of going into administration.  So long as the rescuer is able to support the cashflow requirements of the rescued school the position can then be stabilised and evaluated in a less pressurised timescale.

Conclusion

Collaborative working usually presents few legal obstacles and normally simply requires adequate documentation.  An element of subsidy may be permissible where the objects of the subsidiser are wide enough: if they are not, a proposal to widen them will require Charity Commission consent but is unlikely to meet resistance.

Merging schools is a difficult task.  The particular circumstances leading to a merger will vary from case to case.  Charity trustees must keep a firm grip on their school's finances and plan well ahead.  The overriding factor for governing boards to bear in mind when considering their options is whether their actions are in the best interests of the school's beneficiaries and validly in pursuit of their purposes.

In practice many schools are anchored to a locality.  The possibility of merging is therefore usually limited by the willingness of parents to travel to a new location and that is only the beginning of it: key staff will also be needed and there are substantial presentational issues to deal with in order to maintain the confidence of stakeholders.

Careful due diligence is key to successful mergers but, where a rescue is required, techniques are available to allow swift steps to be taken to preserve the position while more detailed consideration is given to longer term solutions.