UK government introduces the Higher Education Restructuring Regime
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Introduction
As with many other industries during the Covid-19 pandemic, the higher education sector (HE sector) has struggled financially.
The number of overseas students able or willing to travel to study in the UK decreased substantially during the height of the first wave of infection, while many UK students deferred places.
Of those who did take up places, stay at home orders meant there was less demand for accommodation and universities were unable to generate revenue from other ancillary facilities (such as conference and sports facilities).
In July 2020, the UK government set up the Higher Education Restructuring Regime (HERR) to help prevent and manage the potential insolvency of organisations in the HE sector.
The failure of any higher education provider (HEP) due to insolvency would have significant negative consequences for students, local communities (who benefit from employment, other income opportunities and services that typically accompany the establishment of HEPs) and for the government, whose policy has been to support the growth of the HE sector.
Loans will only be provided to HEPs if they are at risk of insolvency and have explored all other funding options and where there is an economic case to do so.
The government has confirmed the regime is not a taxpayer-funded bail-out of the HE sector and that there is no guarantee that every struggling institution would be rescued.
Applications for funding under the scheme will be reviewed by an independently chaired Higher Education Restructuring Regime Board (HERR Board) made up of external experts on restructuring and the HE sector.
The Secretary of State for Education will be advised by the HERR Board on whether to intervene in each case.
The HERR will focus on the following policy objectives:
As with many other industries during the Covid-19 pandemic, the higher education sector (HE sector) has struggled financially.
The number of overseas students able or willing to travel to study in the UK decreased substantially during the height of the first wave of infection, while many UK students deferred places.
Of those who did take up places, stay at home orders meant there was less demand for accommodation and universities were unable to generate revenue from other ancillary facilities (such as conference and sports facilities).
In July 2020, the UK government set up the Higher Education Restructuring Regime (HERR) to help prevent and manage the potential insolvency of organisations in the HE sector.
The failure of any higher education provider (HEP) due to insolvency would have significant negative consequences for students, local communities (who benefit from employment, other income opportunities and services that typically accompany the establishment of HEPs) and for the government, whose policy has been to support the growth of the HE sector.
Loans will only be provided to HEPs if they are at risk of insolvency and have explored all other funding options and where there is an economic case to do so.
The government has confirmed the regime is not a taxpayer-funded bail-out of the HE sector and that there is no guarantee that every struggling institution would be rescued.
Applications for funding under the scheme will be reviewed by an independently chaired Higher Education Restructuring Regime Board (HERR Board) made up of external experts on restructuring and the HE sector.
The Secretary of State for Education will be advised by the HERR Board on whether to intervene in each case.
The HERR will focus on the following policy objectives:
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Protecting the welfare of current students;
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Preserving the sector’s internationally outstanding science base; and
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Supporting the role HEPs play in regional and local economies through the provision of high-quality courses aligned with economic and societal needs.
Procedure
To be eligible for the HERR, an HEP must be registered with the Office for Students in the Approved (Fee Cap) category. The scheme is not open to Further Education Colleges or Sixth Form Colleges.
Before an application is made, the Higher Education Restructuring Unit (HERU) will contact the HEP for a consultation to discuss:
To be eligible for the HERR, an HEP must be registered with the Office for Students in the Approved (Fee Cap) category. The scheme is not open to Further Education Colleges or Sixth Form Colleges.
Before an application is made, the Higher Education Restructuring Unit (HERU) will contact the HEP for a consultation to discuss:
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The financial challenges the HEP is facing;
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Sources of finance already pursued; and
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The process and next steps for the HERR.
After the initial consultation, the HEP must complete an application form to enter the triage stage.
During the triage stage, the HERU will review the application and evaluate:
During the triage stage, the HERU will review the application and evaluate:
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Information relating to staff and student numbers and characteristics
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The applicant's provision and operations; and
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The community and local economy.
HERU will filter out any applicants where one of the following is satisfied:
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The applicant's financial challenges are not related to the Covid-19 pandemic;
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The applicant has not explored all of its options to obtain funding; or
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Failure of the HEP would not cause significant harm to the national or local economy or society.
Applicants likely to be rejected will be notified and have 14 days from the date of notification to make representations against the decision to their case manager by email.
Successful applicants will undergo a 6 to 8 week Independent Business Review (IBR) conducted by financial advisers.
This will be funded by the HEP itself. During the IBR, the HEP should prepare a restructuring plan that must have a realistic prospect of bringing the HEP back to an operating surplus with a sustainable level of debt and a reasonable time frame for repaying the HERR loan.
The amount, term and repayment schedule of the loan will be determined on a case-by-case basis.
To see further information on the HERR procedure, please see our application process flowchart.
Public policy
In devising the HERR, the UK government has faced the difficult challenge of balancing the commercial considerations of stakeholders in the HE sector, the future needs of a strong UK economy and the provision of higher educational services for students.
While the UK government is clearly trying its best to assist all stakeholders, some HEPs will inevitably lose out on HERR support.
The HERR procedure is extensive, however such rigour it is necessary to determine those that are in most need and whose failure would have the most devastating consequences, in order to properly protect the UK HE sector's future.
The HERR's stringent obligations will also help ensure HEPs take their obligations seriously rather than letting their situation worsen in the knowledge they can rely on a government safety net.
Final comments
For organisations operating in the HE sector, it is best practice to carry out IBRs early.
It is crucial that HEPs with any concerns regarding their solvency seek independent legal advice and instruct insolvency practitioners, to fulfil their obligations and mitigate any potential personal liability of directors, trustees and/or governors.
Successful applicants will undergo a 6 to 8 week Independent Business Review (IBR) conducted by financial advisers.
This will be funded by the HEP itself. During the IBR, the HEP should prepare a restructuring plan that must have a realistic prospect of bringing the HEP back to an operating surplus with a sustainable level of debt and a reasonable time frame for repaying the HERR loan.
The amount, term and repayment schedule of the loan will be determined on a case-by-case basis.
To see further information on the HERR procedure, please see our application process flowchart.
Public policy
In devising the HERR, the UK government has faced the difficult challenge of balancing the commercial considerations of stakeholders in the HE sector, the future needs of a strong UK economy and the provision of higher educational services for students.
While the UK government is clearly trying its best to assist all stakeholders, some HEPs will inevitably lose out on HERR support.
The HERR procedure is extensive, however such rigour it is necessary to determine those that are in most need and whose failure would have the most devastating consequences, in order to properly protect the UK HE sector's future.
The HERR's stringent obligations will also help ensure HEPs take their obligations seriously rather than letting their situation worsen in the knowledge they can rely on a government safety net.
Final comments
For organisations operating in the HE sector, it is best practice to carry out IBRs early.
It is crucial that HEPs with any concerns regarding their solvency seek independent legal advice and instruct insolvency practitioners, to fulfil their obligations and mitigate any potential personal liability of directors, trustees and/or governors.
View our HERR application process flowchart.
This article was authored by educational insolvency specialist director, Carly Schiff and trainee Chris Tang. For more information on our education law expertise, please contact the authors or visit our education sector page.
