Privately run and owned schools can be very profitable but can also lose money quickly if they drop below the critical level of break even with pupil numbers. Another issue can be if the Local Authority suspends the schools’ licence to operate.
A school usually has a very large overhead in teachers wages and pensions and some long serving staff who have built up considerable redundancy rights over several years.
A school can find it very difficult to shrink down the staff numbers without it using all up all the remaining cash flow in paying those staff off. Redundancy costs can be substantial. If the school owns the freehold of the building it can also mean the property is worth a lot more as an open operating school than an empty boarded up building. Schools do not have easy alternative uses without a lot of development costs.
One solution is to recognise that liquidation is probably the right answer if the school can not be sold and close down. Liquidation allows the Government Redundancy Payment Service to step in and pay arrears of wages, holiday pay, notice pay and critically redundancy pay.
We have dealt with a number of schools and know the pitfalls the directors can face if they keep going too long including taking fees in advance from parents but not being able to deliver the education that has been paid for.
Other issues for schools are exam grading, safeguarding and keeping the records safe for all students. The safe keeping of student data is a very important issue.
Early professional advice is key to make sure the directors are not liable for wrongful trading.
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Licensed Insolvency Practitioner