Merger musings – common issues in FE College mergers

FE mergers are back on the agenda big time if recent instructions are anything to go by. Common themes seems to be emerging which I thought merited a couple of quick blogs.

Firstly, the role of college governors as charity trustees is sometimes overlooked or an after-thought , but can offer a useful framework in which to address some of the significant decisions that need to be made as part of the merger process.  In summary, in deciding to merge, charity trustees need to consider whether and how the merger will enable the charity to further its objects better than continuing alone. In other words, how and why are the college’s learners and other beneficiaries (e.g employers) better served by the merged college rather than its current, independent parts?  Through the charity prism, a college should exist only for so long as it remains the best vehicle to deliver education and training to its stakeholders. If a better model of delivery exists, that should be adopted, even if it involves the college legally ceasing to exist.

This approach provides an objective and impartial reference point for one of the more controversial questions that often arises and that is whether the merger should take the form of a dissolution and the transfer of the assets, rights and liabilities of the dissolved college to another college (Type B), or the simultaneous dissolution of two (or more) existing colleges and the transfer of their assets rights and liabilities to a newly created body (Type A)

The latter is often instinctively preferred, as it avoids any suggestion that the merger is a takeover. Historically, when college mergers were effected by order of the Secretary of State, the process was substantially the same for both merger types, (although Type A was always more practically complex, requiring multiple transfers of properties, employees, students and contracts to achieve what was at most, I argue below, a matter of presentation). 

Now the process for a Type A merger is itself more complex: the Secretary of State, who has no role in Type B mergers, has to be prevailed upon to create a new corporation, rather than the much simpler route of transferring everything to one of the existing corporations. Alternatively (although seemingly not a particularly popular alternative) a new company could be established jointly by the merging institutions to which they then transfer their assets and liabilities. Again there is additional complexity and expense involved in doing this compared to the more straightforward Type B route. 

So why do I describe the distinction as a matter of presentation rather than substance? Because whether or not a merger amounts to a takeover is not dictated by whether the “receiving” body was an existing or a new body, but rather by a series of more practical considerations: what was the make-up of the post-merger governing body and leadership team, what is/are the new curriculum portfolio, brand, name, vision and values of the merged entity. These are all issues that ought to be answered by the charity law considerations identified above and can be delivered through both merger types.  Further, charity law considerations dictate that the resources of the charity should be safeguarded for the charitable object of delivering education and training, and therefore any unnecessary expense or dissipation of resource should be avoided in the merger process: pick the simplest route and move forward to merger as smoothly as possible. Applying this analysis, there will generally not be a case for Type A mergers, because there is nothing that cannot be achieved through the legally more straightforward Type B route.

Smita Jamdar 
Partner and Head of Education
T: 0121 214 0332
E: smita.jamdar@shma.co.uk
W: www.shma.co.uk

From → General Interest

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