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Coronavirus - Government Announces Launch of New Restructuring Regime to Support Universities in Financial Distress

on Thursday, 23 July 2020.

Recognising the financial difficulties faced by higher education providers and the essential contribution they make to the economy and society as a whole, the Government has announced the Higher Education Restructuring Regime (HERR).

What Is the HERR?

The HERR is a regime in which an individual organisation will undergo a restructuring exercise and implement various restructuring plans to help it overcome the financial challenges that the coronavirus (COVID-19) pandemic has produced. The regime aims to allow said provider to emerge stronger, more efficient and more focussed on delivering a high quality offering in key areas of social and economic importance.

The HERR is intended to support providers in England in tackling the various concerns which coronavirus has raised, by helping them introduce detailed restructuring plans, supplemented by public funding in certain circumstances, to address issues such as:

  • student protection
  • governance
  • efficiency
  • research
  • provision and level of provision

The Department for Education (DfE) has made clear that the implementation of HERR will be considered on a case-by-case basis. The establishment of the HERR should not be considered a guarantee that every single provider will be protected from failure. There will inevitably and unfortunately still be higher education providers who will be left with no option but to cease trading and exit the market.

The DfE has also said that HERR should not be seen as a taxpayer funded bail-out. Any public funding which is used to supplement an organisation's restructuring plans is likely to come in the form of a repayable loan and as a last resort that will be considered only once all other financing options and support measures have been explored.

Coronavirus real estate 2

Objectives of the HERR

In assessing which HE providers may benefit from the use of HERR, the DfE will seek to achieve the following overarching objectives:

  • protecting the welfare of current students
  • preserving the HE sector's internationally outstanding science base
  • supporting the role that HE providers play in local and regional economies through the provision of high quality courses aligned with societal and economic needs

The DfE has suggested that providers exploring restructuring options outside of the HERR should also keep the overarching objectives in mind.

Who Can Benefit From the HERR?

In order to be considered for the HERR, providers must be on the Office for Students Register in the approved (fee-cap) category.

Other conditions that will have to satisfied include:

  • there being a clear economic and value-for-money reason for intervention
  • the problems of the provider being related to coronavirus
  • there being a clear and sustainable model for future provision as a result of the restructuring (ie the provider should not need further assistance in the future)
  • being able to show that the failure of the provider would cause significant harm to the national or local society or economy (eg due to the potential loss of high quality research particularly in relation to coronavirus, or the loss of teaching provision for the healthcare sector such as doctors, nurses and social care)
  • assurances that the provider is fully complying with its legal duties to secure freedom of speech

Practicalities of Using the HERR

Details are continuing to emerge of how HERR will be implemented from a practical perspective.

The DfE is in the process of setting up an independently chaired Higher Education Restructuring Regime Board, made up of external experts well versed in insolvency, real estate and HE policy matters. The Board will assess individual providers on a case-by-case basis. The Secretary of State for Education is expected to consult with the Board in deciding when government intervention will be necessary.

The DfE is also establishing a dedicated email address for providers in financial difficulties to initiate discussions about the use of the HERR. In addition to contacting the DfE, providers are expected to liaise with the Office for Students about the option of using HERR. We would also remind providers that their regulatory obligations to the Office of Students remain regardless of whether the HERR is being considered or not.

In these trying times, it is important for HE providers in distress to seek expert legal advice at an early stage, so that we can assist you with your communications with the relevant bodies and ensure that you are operating in accordance with regulatory requirements. If necessary, as matters progress we will assist you in the provision of information for the purpose of any independent business review (IBR) that the DfE may commission and then help you work with any IBR advisor in preparing the detailed restructuring plans needed for the HERR.

Hope for the Future

Used properly, the HERR should give providers the support necessary to ensure protection for students and the continuous provision of high quality teaching which is essential for the future growth of the economy and society.

It is key for providers to be aware of the support measures available to them, and to access that support promptly when needed to avoid any unnecessary closures or permanent exits from the HE market.

For specialist legal advice on financial distress in the higher education sector, please contact Ambuja Bose in our Insolvency and Restructuring team on 07469 850 886, or complete the form below.

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