The Legal Framework for Governance 31 January 2015 Tom Morrison - - PowerPoint PPT Presentation

The Legal Framework for Governance

31 January 2015

INTRODUCTIONS

Tom Morrison

LEGAL STRUCTURES AND EDUCATION PROVIDERS

Gerry Morrison & Tom Morrison

Legal Structures for Further Education Providers

• Statutory Further Education Corporations
• Education Act 2011
• Companies
• Charitable Status
• Subsidiaries - wholly owned subsidiaries - joint venture

companies

• Relationship between Further Education Corporations

and Subsidiaries

• Academy Trusts

Statutory Further Education Corporations

• Majority of Further Education Colleges
• Set up by order of the Secretary of State under the FHEA
• Powers vested by Act of Parliament
• Independent Corporate Bodies
• Own legal personality distinct from governors/members
• Instruments and Articles of Government
• Purposes set out in Section 18 and 19 FHEA
• Composition, procedures, internal powers
• Private training providers = mainly companies
• A few colleges are companies

Education Act 2011

• Prior to EA 2011 Further Education Corporations’

instruments and articles could only be amended by regulations made by SOS under FHEA

• Amending regulations issued periodically, uncommon for

FE Corporations to request bespoke changes

• Less flexible, hard to change governance structures,

internal procedures

• FE Corporations at a disadvantage to private training

providers and colleges established as companies

Post-Education Act 2011

• FE Corporations’ freedom to amend instruments and articles
• Instruments and articles must specify how FE Corporation

may amend them

• SOS power to amend, replace or revoke
• Change composition of governing body, procedures and

internal powers

• Balance flexibility, efficiency with protecting the organisation’s

aims, assets and beneficiaries

• Remove some of the previous disadvantages
• Provided instruments and articles comply with Schedule 4 of

FHEA (minimum requirements for governance)

Post-Education Act 2011

• FE Corporations’ power to dissolve themselves
• FE Corporations may transfer property, rights and

liabilities upon dissolution to specified education providers for educational purposes

• Consultation required
• FE Corporations can use EA 2011 powers to convert

legal structure

• Rationale for change?

Companies

• Limited by shares
• Limited by guarantee
• Regulated and incorporated by Companies House
• Companies Act 2006
• Memorandum and Articles
• Power to amend articles and dissolve
• Two-tier system of governance - directors and members
• Statutory directors’ duties

Powers

• Power for FE Corporations to convert legal structures to

companies

• Can be a wholly-owned subsidiary of Further Education

Corporation or joint venture companies

• Academy Trusts

Charitable Status

• FE Corporations are exempt charities
• Principal Regulator SOS for Department for Business

Innovation and Skills

• FE Corporations cannot amend instruments and articles

to cease being charities

• Governors’ legal duties and responsibilities as charity

trustees

• The Charity Commission, The Essential Trustee: What

you need to know

• Aims for public benefit

Advantages Charitable Status

• Tax breaks
• FE Corporations exempt from corporation tax, income

and capital gains taxes arising out of the provision of education and stamp duties

• Fundraising
• PR benefits
• Asset-lock

Disadvantages Charitable Status

• Perceived red tape (charity law)
• Complex rules trading activities
• FE Corporations cannot carry out large scale non-

charitable trading or non-primary purpose trading

• Routed through subsidiary
• Ultra vires, breach charity law, tax penalties
• Rules on payment of governors as charity trustees
• Partnership/joint ventures with non-charities additional

red tape

SUBSIDIARIES, JOINT VENTURES AND COLLABORATION IN THE EDUCATION SECTOR

Tom Morrison & Gerry Morrison

Subsidiaries

• Wholly-Owned Subsidiaries

– colleges can establish separate legal entities to run different activities across their group – ring-fences risks/liabilities – commonly create wholly-owned subsidiary companies – tax efficient gifting of surplus to parent college – diversification of activities – development of new brands – acquire private training providers

Relationship between Further Education Providers and Subsidiaries

• Non-charitable subsidiary - arm’s length commercial

relationship between subsidiary and parent charity

• Subsidiary = separate legal entity with its own legal

personality

• Directors of subsidiaries not all the same as college

governors

• Conflicts of interest
• Charity law regulates funding of subsidiaries by FE

Corporations

• Reporting/Monitoring

When might a subsidiary be appropriate and what are the alternatives?

Legal models for collaboration

• Wide ranging
• No single definition
• Interchangeable use of terms
• Joint venture = JV
• Legal entity (Specific Purpose Vehicle = SPV)
• Partnership
• Contractual joint venture
• Collaboration or subcontracting?

Joint Venture Companies

• Partnerships/joint ventures between FE Corporations

and non-charities/other organisations/colleges

• Ring-fences risk/liabilities
• Apprenticeship training agencies
• Owned by the College and one or more third parties
• Membership Agreement

Rationale

• Key to any successful collaboration
• Short term requirement?
• Longer term benefits?
• Driven by specific project requirements?
• Political drivers?
• Cost saving?
• Creating capacity?
• Better together?
• Rationale should dictate choice of legal model

Distinct projects

• Large scale projects
• Bringing together multiple partners
• Geographic reach
• Capability
• Capital projects - more likely to be SPV
• Revenue projects - more likely to be contractual JV

Longer term requirements

• Collaborative working for the long term
• Explored other options - e.g. merger?
• Typically transfer of functions into a SPV
• Outsourcing
• Procurement
• Governance of the SPV
• Longer term contractual alternatives

Academy Trusts

• Companies limited by guarantee
• Exempt charities
• Sponsored by Colleges
• Set up multi-academy trusts
• Independent, separate legal entities, own legal

personality

• Funded directly by Department for Education via a

funding agreement

• Relationship with the college as sponsor
• Conflicts of interest

Group discussion and questions

Tom Morrison Gerry Morrison

Partner

tom.morrison@rollits.com 01482 337310 01904 625790

Partner

gerry.morrison@rollits.com 01482 323239 01904 688539