The Independent Schools Magazine held a seminar at Blake Lapthorn solicitors offices in Oxford with its education team.

1. Independent schools seminar
9 February 2010

2. Governors’ duties - what you need to
know
Adrian Pashley, senior solicitor
Charities and Education team
E: adrian.pashley@bllaw.co.uk
T: 023 8085 7004

3. Duties & responsibilities of Governors
Key duty: advance purposes of charity
Responsible for proper administration of charity
Ultimately responsible for everything charity does
Act reasonably and prudently
Safeguard and protect assets
Act collectively
Act in best interests of charity
Avoid conflicts of interest

4. Case study – St Peters Independent School
Charity Commission Investigation
Headmaster - allegations of physical harm
Failing educational, welfare and organisational
standards
Failure to address complaints made about child
protection and about the school and staff

5. The Governors’ response
No action against Head - allegations unfounded and
malicious
Ignored advice of agencies to suspend
Head to retire at end of academic year
Head to return as a consultant to effect ‘hand over’
Access to pupils to be monitor
Ofsted inspection
Did this satisfy the Charity Commission?

6. No….Commission found
Governors failed to discharge their duty to act in the best interest of the
School, its pupils, staff and stakeholders
– Inadequate management of allegations about the Head
– Failure to take adequate steps to protect beneficiaries (pupils)
– Inadequate supervision and monitoring of activities of the School
– Inadequate
Child protection policies and procedures
Complaints policy
Decision-making processes
Risk management processes

7. Intervention by the Commission
Initial investigation - misleading information given
Formal inquiry
1st direction for protection of charity - failure to comply
2nd direction for protection of charity
– Governance review (six months)
– Reports to Commission

8. Governance Review
Delegation (policies and procedures)
Procedures to ensure Governors engaged in the
supervision of the school its staff and activities
Complaints procedure
Child protection policies and procedures, training
Risk management strategy
Make up of the Board of Governors

9. The lessons
Governors responsible for overall management of the
administration of the School
– Act as a team, collective decision-making
Governors ultimately accountable and responsible for
decisions or actions of staff
– Clear lines of accountability
– Adequate reporting mechanisms

10. The lessons (cont…)
Pay particular attention to the inherent risks
associated with the work
React quickly and responsibly to allegations of harm
Have adequate policies to safeguard pupils
- implement them
- monitor them
Protect the School’s reputation - manage risks and
complaints

11. The lessons (cont….)
Manage complaints - openly and transparently under
a procedure
Report serious incidents
- significant risk to property, work, pupils, reputation
IMMEDIATE
- otherwise in the annual return

12. Conclusion
Governors must be familiar with what their role
entails by way of governance and the management
of operational risk
Formal induction
Trustee training

13. Adrian Pashley
senior solicitor, Charities and Education team
New Kings Court, Tollgate, Chandlers Ford,
Eastleigh SO53 3LG
E: adrian.pashley@bllaw.co.uk
T: 023 8085 7004

14. AFFORDABILITY
In 1980 average school fees were equivalent to 22%
of median salary
In 2010 average school fees are equivalent to 40% of
median salary

15. AVOIDING NASTY SURPRISES
Strategy versus Tactics
This means that independent schools are now 60%
‘more expensive’ than 30 years ago

16. Pupil Numbers
Are numbers down throughout the school?
Is there an inverted pyramid?
Are enrolments dropping?
Are there fewer footfalls/visits?
Have there been changes in relationship/s with feeder schools?
Has a recent marketing campaign or plan for growth failed or
stalled?

17. Facilities
Are you able to fully provide for current curriculum?
Are parents asking for facilities you are not able to offer?
Are your competitors’ facilities superior or are they marketing
new facilities?
If your school is on leased premises- is the lease coming to an
end or is a rent review pending?

18. Competition
Is there a new school in the area- this could be a
State school or Academy?
Has a local State school markedly improved its
results and/or facilities?

19. Public Relations
Has your school suffered recently from ‘Bad’ PR such as a food
poisoning incident, bulling, child molestation claim, accident?
Has your Head changed recently or been absent due to illness
etc?
Has the school recently been inspected with an outcome below
expectations?
Has there been an increase in parents’ complaints?

20. Strategic
Have you been approached recently by another
school/group proposing a takeover or merger?
Are you considering going co-ed, changing/limiting
the current age range/s, changing catchment area?

21. Governance
Are you able to recruit Governors with the right skills
or standing?
Has there been a falling out between Governors or
the Senior Management Team?
Are your constitutional documents too restrictive?

22. Financial
Has expenditure (including Capex) exceeded income for some time?
Hve you been ‘forced’ to sell-off land or cash-in investments to fund general
operation?
Has your Bank reduced your overdraft facility or refused credit?
Have your accountants/auditors raised concerns over your status as a ‘going
concern’?
Have you raised your fees at a rate exceeding the market average?
Has there been an increase in requests for bursaries, scholarships and/or
financial aid?
Have you had increasing difficulty in recovering unpaid fees?

23. Staffing
Does expenditure on salaries (including add-ons) exceed 60% of your
general fee income?
Are you suffering from a deteriorating pupil/staff ratio?
Have you made significant redundancies in the last three years?
Are a number of your key staff retiring?
In the case of non-Charitable Trust schools- are the owners nearing
retirement without a defined ‘succession’ plan in place?
Has there been a loss of confidence/morale amongst the staff with an
increase in turnover?

24. Key Tasks
Check through Key Indicators to review current standing
Anticipate what might happen when you are in the ‘good times’- do not
wait for the ‘bad times’
Strategise for the school evolving to meet future trends, aspirations and
needs
Avoid temporary ‘tactical’ solutions
Include all known external factors
Agree a realistic vision for the school
Involve all stakeholders in the implementation of the vision
Seek ‘Change Agents’ from within the staff

25. Final Thought
DO NOT BE AFRAID TO CHALLENGE
THE: ORTHODOXIES AND “MYTHS”
WHICH CURRENTLY DRIVE THE
SCHOOL

26. isbi schools
helping parents find schools • helping schools find pupils
www.isbi.com schools • schools@isbi.com • 01980 620575
Andrew McEwen
Consultant with isbi educational consultants
‘Avoiding nasty surprises – strategy versus tactics’

27. Future options: school mergers and buy
outs
Peter Story, Consultant with isbi educational consultants
www.isbi.com • schools@isbi.com • 01980 620575

28. Mergers and buy outs
The main objective of a merger or buy out is to improve the business
The customers (the parents) expect changes and need to be reassured,
while the new management will want to initiate changes. So the
parents need to be able to buy into the new vision
As parents pay substantial fees they often believe they have a role in
managing a school. In many charitable schools they hold the majority
on the board of governors. This can skew the decision making process
Any merger or buy out of a school with parents and pupils feelings
being involved will have problems. With detailed planning most can
be overcome but, to be a success, by the time of an announcement
there must be a clear vision, with all major decisions made, and this
must be communicated by the new management
As an illustration of what can go right and wrong, my personal experience
of a buy out and a merger. Both closed premises and moved pupils onto a
new site...

29. The buy out
The proprietor of the school had had enough and it was probably
making a loss.
He wanted out, but with dignity and with the school’s name and general
ethos
being maintained
He realised his involvement, once the change of management had
taken place,
would be minimal, and he accepted that fact
Prior to the announcement which, by design, came as a complete
surprise to
the parents, the management of the purchasing school had worked out
the
answers to the likely questions
The key one was the retention of the Headmaster, it showed a degree
of
continuity
At the parents’ evening, two days after the announcement, the new
management were able to present their vision
The outcome
We retained over 50% of the pupils. But, considering it was a day school
and that it was being moved 14 miles from a town to deep into the
country, we believed this was a success, especially as within 12 months we

30. The merger
We started discussions three years before it took place. But talks fell
through as
the senior partner in the merger (there is always one) would not
guarantee to
run the junior partner exactly as it was being run
A majority of the junior partner’s governors realised that their model
was not
financially viable, but there were parent governors who felt it could at
least run
on in its uneconomic mode, at least until their own children were due
to leave
Two and a half years later they were back, asking for new talks, as the
banks
were threatening to foreclose

31. The merger, continued...
As a result negotiations were hasty, with concessions on both sides and
key
decisions (staffing, fee levels, etc) had not been concluded prior to the
announcement being made
It was made, at the bank's insistence, just prior to the start of the
Summer
holidays, giving parents a good long time to look elsewhere
A further cause of problems was the agreement to let the junior
partners’
governors make the announcement to their parents, giving their version
of
what they felt they had retained of their school’s ethos and modus
operandi
The outcome
Despite efforts of the senior partner’s management to correct some of
the
statements that had been made, and to keep parents informed of the
other
decisions as and when they were made, the parents found it difficult to
see a
complete picture
Other schools had established visions they could buy into

32. Future options: sales and mergers
Pat Carter, Chairman of National SchoolTransfer and isbi schools
www.nationalschooltransfer.com • info@nationalschooltransfer.com • 01980 621251

33. School closures – 2009 and 2010
In 2009 school closures were prominently reported in the media
Yet, as the ISC noted, actual closures in 2009 were similar to 2008
Lost jobs will affect families with children in the independent sector
Analysts predict more pupils will be lost this September than last
So there is likely to be a genuine increase in schools closing in 2010
On top of which some schools face problems with bank funding

34. However, all is not lost
NST’s experience suggests three key messages:
Schools do not have to close IF trustees/owners plan far enough
ahead
A merger or sale can save a school, but take advice well in
advance
True of charitable trust schools as well as proprietorial schools

35. Charities CAN merge and transfer
A charity’s assets – the school – can be sold
The proceeds are then used to meet the charitable objectives
This can free trustees from running a business (the school)
Simplifying their job to just running the charity itself
Memorandum and Articles of Association may need amending
Key message: a failing charitable school CAN be saved by
sale/merger

36. Competition – charitable trusts and proprietorial
Charitable schools swim in the same waters as proprietorial
But in changing times they cannot respond as quickly to a
problem
Or to an opportunity in the market place
An owner can make decisions without calling a meeting of
governors
Proprietorial schools may be able to weather financial storms
better
than some charities

37. Planning and confidentiality are crucial in mergers and transfers
Proprietorial schools can merge and transfer with greater ease
Confidentiality crucial to avoid parent and staff uncertainty
Information must be disseminated to as few people as possible
An orderly merger or transfer requires
Organisation
Forward planning
Advice from appropriate bodies
If not planned meticulously the potential for mistakes increases
The worst case is a leak before loose ends are tied up
Which can precipitate the very problems one is trying to avoid!

38. School transfer... retention, cost and confidentiality
The majority of 90+ schools NST has merged/transferred in 18
years
have seen pupil retention of well over 90%
No school likes to admit openly that it is facing difficulties, but...
A free audit of the school’s circumstances can often be
organised
Advice on sale and transfer is in guaranteed complete
confidence

39. Public Benefit
Joss Saunders, partner
Charities and Education team
E: joss.saunders@bllaw.co.uk
T: 07711 443142

40. Revision
Removal of presumption of benefit
There must be an identifiable benefit or benefits
– be clear what the benefits are
– benefits must be related to aims
– benefits must be balanced against any detriment or harm
Benefit must be to the public or a section of the public
– beneficiaries must be appropriate to the aims
– opportunity must not be unreasonably restricted
by geographical or other restrictions or
by ability to pay any fees charged
– people in poverty must not be excluded from the opportunity to benefit
– any private benefits must be incidental
5 schools assessed July 2009: 3 satisfy the tests
Up to 5 years to prove benefit

41. 7 pointers to pass the test
Allocate responsibility
Understand the requirement
Assess the benefit
Keep records
Reporting and review
Make necessary adjustments
Avoid the pitfalls

42. Allocate responsibility
Usually a governor
Clear Terms of Reference
Report to Governing Body, who carry the
responsibility

43. Understand the requirement
Knowledge base
Charity Commission guidance
– general
– on education
– on fee charging charities
– example annual reports
– outcome of 5 assessments published July 2009
Keeping up to date

44. Assess the school’s public benefit delivery
Legal purposes
Fees
Bursaries
Community involvement
Other outreach

45. What do your objects say: between a rock and a
hard place
To advance the education of the pupils of the school
To promote and provide for the advancement of
education and in connection therewith to conduct,
carry on, acquire and develop in the United Kingdom
any boarding or day school or schools for the
education of children of either or both sexes
The advancement of education by the conduct of a
school near Oxford for buys and girls up to the age of
twelve

46. Keep records
Keeping minutes
Assembling statistics
Successes and failures
Admissions and rejections
Applications for assistance
Who are the people who benefit?
Measuring against objectives

47. Reporting: making the case
Charity Commission – Alltown example
Review
Publicly available
Accessible by parents

48. Make adjustments
Aims
Decision making
Financial accessibility
– fee setting
– bursary fund and fundraising
New projects

49. 9 Pitfalls to avoid
Lack of governor buy-in
Not understanding the real meaning of the objects
Tokenism
Is the strategy sustainable?
Is there a genuine means test?
Failing to keep records
It can’t just be any community involvement
Ignoring the Commission’s guidance
Failing to respond to Commission feedback

50. What does the future hold?
Does change of government mean change of rule?
Litigation challenge and the guidance
What if you fail the test?

51. Joss Saunders
Partner, Charities and Education team
Seacourt Tower, West Way
Oxford OX2 0FB
E: joss.saunders@bllaw.co.uk
T: 07711 443142

52. Safeguarding income in difficult times
9 February 2010
James Ragg, Partner - Charities and Schools
www.hwca.com

53. This recession
Speed of onset
Delayed impact
Multiple effects
– Parents’ income
– Overall economic uncertainty
– Availability of finance
www.hwca.com

54. Information
Timely budgets and projections
Fast actual results – speed vs accuracy
Early initiation of key decision-making
Focus on hard to control areas
Construct “what-if?” scenarios and
pre-plan actions
www.hwca.com

55. Contribution
Limited entry points, multiple exit points
Short-term direct effect of recession - hopefully
Long-lasting effect of a small entry
Some income better than none, but…
– Beware widespread or long-lasting discounts
– Try and understand why parents buy
Are all current discounts cost-effective?
www.hwca.com

56. Summary
Ensure speedy reporting of results
A guesstimate in good time outweighs certainty arriving
too late
Forecasting pupil entry and exits is key
Parental confidence is vital
www.hwca.com

57. Finding and Evaluating
Sources of Finance for Capital
Projects and Working Capital
Dorothea Dunn, Director of Education
Santander Corporate Banking
February 2010

58. THE JOURNEY……………

59. Clear and Mutual Understanding of Your
Circumstances
• Downturn in economy
• Performance
• Change – Today’s risks different to those
of a year ago
• No Room for Complacency

60. Homework!
• How diversified is your school’s income?
• How effective is your fundraising?
• Do you have fixed cost structure –
teaching/administrative staff contracts?
• Are there sufficient reserves/cash for
potential problems in the future?

61. What To Do Next …..
• Clear Development Plan
• Awareness of Market Place
• Viability of Operation/Project
• Remain focussed with mindset to
endorse change if necessary

62. Good News!
• Funding is available for well run schools with sensible and
conservative policies
Refinance of existing facilities from other lenders
Development facilities
Facilities Revolving credit term loan facilities
Working capital facilities
Revolving credit up to 2 years, capital holiday and
Terms interest only repayment
Term loans up to 20 years
Computers, telephone systems, catering equipment,
Asset Finance
coaches etc
Interest Rate Certainity of rate
Mangement Assist with planning cashflows

63. Banks Evaluation
What to include to give credibility to your proposition
Reputation/market/range of
School subjects/competition/regulation/capacity to
borrow
Financial
Performance Financial Projections – how robust?
Historic Accounts
Strategic Plan
Management Vision for future
Quality of Management team
Business expertise/academic background
Previous experience

64. Relationships
• Cannot underestimate the importance of
relationships
• One size does not fit all!
• Building a track record
• If Existing Bank Not Engaging – Don’t suffer in
silence – Find a new one!
“Nothing can undermine a relationship more completely than a lack of trust”
Robert Solomon, Leadership Now

65. Meet The Thames Valley Team
The Santander Group worldwide has always believed in building long
term relationships. We work closely with our customers to understand
their business and aim to be true partners in promoting their success.
This same approach underpins the Thames Valley Education Team
Vanessa McCormack Dorothea Dunn Justin Hayward Chris Worsley
Regional Director Relationship Director Relationship Director Relationship Manager
07798 581850 07920 531722 07809 493739 07809 493701
Vanessa.mccormack@alliance- Dorothea.dunn@santander.co.uk Justin.hayward@alliance- chris.worlsey@alliance-
leicester.co.uk leicester.co.uk leicester.co.uk

66. 66
Banco Santander S.A. and (name of company) advise that this presentation contains representations
regarding forecasts and estimates. Said forecasts and estimates are included in several sections of this
document and they include, among others, remarks on the development of future business and future
returns. Although these forecasts and estimates represent our opinions regarding future business
expectations, perhaps certain risks, uncertainties and other relevant factors may lead the earnings to be
materially different from what is expected. Included among these factors are (1) the situation of the
market, macroeconomic factors, regulatory and government guidelines, (2) variations in domestic and
international stock exchanges, exchange rates and interest rates, (3) competitive pressure, (4) technology
developments, (5) changes in the financial position and credit standing of our customers, debtors or
counterparts. The risk factors and other fundamental factors that we have stated could have an adverse
effect on our business and on the performance and earnings described and contained in our past reports,
or in those that we shall present in the future, including those filed with regulatory and supervisory entities,
including the Securities Exchange Commission of the United States of America.
N.B.: The information contained in this publication has not been audited. However, the preparation of the
consolidated accounts has been established on the basis of generally accepted accounting principles and
criteria.

67. Charitable Status
Benefits vs. Costs
9 February 2010
Henry Briggs, Schools partner
www.hwca.com

68. Charitable Status
Benefits vs. Costs
ISC Claims for sector as a whole
Make up 83% charitable
Effects of 12 years of Hard Labour
– More or less charities?
– Assisted places scheme replaced
Will it now change?
www.hwca.com

69. Hopeful Hall
Hypothetical example
Pupils 200
£000’s
Fee Income 1,800
Teachers Costs (1,260)
Other expenses (324)
Surplus before taxes and bursaries 216
HEAD Mr Faith, only shareholder
Co. Ltd by guarantee
Site Owned by Co. worth £3m
No depreciation
Assumption All non bursary fee remissions the same for both
www.hwca.com

70. Hopeful Hall
1) Profit from Education Ltd
£000’s
Surplus 216
Rates (36)
Corp. Tax (38) £74k ‘cost of profit’
Net Surplus 142
2) Registered charity Ltd 7% 5% Bursaries
Surplus 216 216 ‘cost of charity’
Bursaries (126) (90)
Net Surplus 90 126
3) Profit > Charity 52 16
www.hwca.com

71. 4) Endowment to cover £’000’s
Either income from
Angels Association 40 13
or
Capital Endowment 1,300 400
(Estimated yield of 4%)
www.hwca.com

72. HOPEFUL HALL
EVEN MORE PROFIT FROM EDUCATION
Profit Motive
Surpluses in sector more like 20% due to -
• Tighter control of costs
• Economies of scale on administration/ Senior staff salaries
• May have less ‘social’ or historic burden compared to charitable competitors
Other Advantages –
• Ability to raise capital
• No governing body!
(streamlined decision making)
www.hwca.com

73. WHAT ABOUT VAT?
Not significantly affected by charitable status (advertising only)
Supply of Education outside the scope of VAT
For Mr Faith the cost might be c. £40k
For all schools, opportunities are on –
– Boarding Houses, new builds
– Facilities such as sports halls, swimming pools
www.hwca.com

74. Charitable Status
Benefits vs. Costs
Conclusions
Should existing charities consider change?
Governing document
Charitable assets
Existing charities on whom change is forced will need to devise scheme with Charity
Commission
Non Charitable Schools in existence may well keep the status quo
Effect on start ups
Future shape of sector
www.hwca.com

75. Charitable Status
Benefits vs. Costs
Predictions
Growth of ‘For Profit’ Schools in Independent sector
Possible outsourcing in maintained sector
The Swedish Model?
www.hwca.com

76. Legal structures
and
Independent schools
Adrian Pashley
senior solicitor
Charities and Education team

77. Charitable structures
Trust or unincorporated association
Company – usually limited by guarantee
Royal Charter body
Statutory corporation
Watch this space!
Charitable Incorporated Organisation (CIO)

78. Non-charitable
Sole trader
Partnership
Companies limited by shares
– School trading companies
Community Interest Company (CIC)
– Social Enterprise

79. In more detail….
Trust or unincorporated association
- deed/scheme/constitution
- Governors are the charity trustees
- no separate legal identity
- Governors personally liable individually and collectively
for all the debts of the school
- liability unlimited
But…
entitled to indemnity from the assets of the trust for all
proper actions

80. In more detail….
Company (limited by guarantee)
– memorandum and articles
– Governors are directors/charity trustees
– separate membership (usually Governors)
– separate legal entity
– liability limited to the level of guarantee (nominal)
– Governors remain personally liable for acts in breach
of trust/certain criminal offences
– update for Companies Act 2006

81. Added Comfort
CC and court can relieve a trustee if he/she has
‘acted reasonably, honestly and ought fairly to be
excused’
Manage operational risk:
- includes choice of structure
- adequate insurances with appropriate levels of
cover (employer’s liability, professional
indemnity, public liability, property, vehicle)
- contractual wording - limit liability to asset value
- trustee indemnity insurance

82. Trustee indemnity insurance
Insurance against claims for breach of trust or duty
as trustees including negligence or default in their
capacity as directors of a corporate charity
NOT
– normal third party claims or
– pay debts of unincorporated charity
But it cannot cover criminal penalties, costs or where
governor knew or ought to have known actions not in
school’s interests

83. The future?
Charitable Incorporated Organisation (CIO)
– registered/regulated by Commission only
– model constitution
– limited liability/corporate body
– two-tier (trustees/members)
– conversion from CLG
– likely to be popular with smaller charities
– simpler to administer (?)
– when?!

84. Community Interest Companies (CIC)
Relatively new form for social enterprise
CLS, CLG or PLC
CIC Regulator and Regulations
‘Community interest test’
Limited scope for investment
– cap on dividends
– cap on interest payments on debts/debentures
More limited tax advantages

85. Trading subsidiaries
Non-primary purpose trading activities
– lettings
– events
Companies limited by shares
Directors - at least one non-governor
Tax
VAT
No subsidy - trading agreement

86. Current and future trends
Mergers
– Ethos and culture
– Strategic drivers
– Structure
– Compatibility of fees and awards
– Due diligence
– Compatible objects?
– Power to merge

87. Current and future trends (cont…)
Convert to CIC?
Sale to corporate
Academies
– conversion
– lead sponsor
Grant-giving trust
Partnering & collaboration
“Franchising”

88. Adrian Pashley
senior solicitor, Charities and Education team
New Kings Court, Tollgate, Chandlers Ford,
Eastleigh SO53 3LG
adrian.pashley@bllaw.co.uk