December 2019 edition: There May Be Trouble Ahead: The Importance of Acting Early to Manage DfE Intervention into a Failing Academy

There May Be Trouble Ahead: The Importance of Acting Early to Manage DfE Intervention into a Failing Academy

In a period of political uncertainty, many trusts find themselves facing forceful intervention by the DfE when one of their academies gets into trouble. However what precisely are the powers of the DfE to intervene when an academy is "causing concern”?

The revised September 2019 version of the DfE’s "Schools causing concern” ("SCC”) Guidance removes "floor” and "coasting” standards as a reason for intervention. Schools with two consecutive Requires Improvement judgements will be eligible for more intensive support, which is optional.

The Guidance however introduces a new Chapter 4 on "Academies causing concern” which repeats the very extensive powers of intervention by the DfE under an academy’s funding agreement. Over recent years, statute and the supplementary funding agreement for academies has been refined to allow the Secretary of State a range of reasons to serve a termination warning notice, which can lead to the termination of the agreement with the Trust and re-brokerage of the academy across to another trust (or, much more rarely, closure of the academy).

For academies in trouble there is little mercy in the current system, so Trusts are encouraged to tackle trouble early and with clear-sighted determination.

Roger Inman

The first main reason is termination after an academy is graded inadequate or requiring significant improvement by Ofsted. The SCC Guidance does point out that "This is a power rather than a duty, meaning the RSC may decide to implement other measures to improve the school, rather than terminate its funding agreement, to bring about a change of trust, for example, where a change of academy trust would prevent the consolidation of improvements in a school.” If a trust has a highly persuasive case that it can turn a Grade 4 academy around it may be given time, although in practice Grade 4 academies (in particular single academy trusts) are usually re-brokered.

The second main reason is the use of a termination warning notice to other academies not "in a category” is for one of the following reasons:

a) the Academy Trust has breached the Agreement; or
b) the standards of performance of pupils at the Academy are unacceptably low (although SCC Guidance now states that intervention on this ground will only be "in exceptional circumstances” when an academy is not graded Ofsted "inadequate” and/or
c) there has been a serious breakdown in the way the Academy is managed or governed; or
d) the safety of pupils or staff is threatened, including by a breakdown of discipline.

With the exception of a) these are the familiar reasons for intervention in all types of schools, whether academy or maintained, under the SCC regime, which have now been re-iterated in the SCC Guidance. In the writer’s experience, however, the ESFA first chooses to use a Financial Notice to Improve ("FNtI”) first to try to achieve re-brokerage more informally without having to go through the SCC regime.

The use of a Financial Notice to Improve ("FNtI”) is governed by the Academies Financial Handbook. All trusts must follow the requirements of that handbook as contractual obligation under their funding agreement. An FNtI can be used "Where ESFA has concerns about financial management and/or governance in an academy trust”. The FNtI is published, which has an immediate impact on an Academy’s reputation, and can have significant effects on its recruitment of students. That publication can therefore further worsen an academy’s position and reduce its capacity to make the changes specified in the FNtI. Failure to make those changes (to the standard expected by the ESFA) "will be deemed a funding agreement breach” which, as explained above, can trigger a termination of the funding agreement.

In practice the use, or threat of use, of an FNtI can be used to encourage rebrokerage of an academy to another trust in circumstances where the DfE cannot compel that outcome, or as belt and braces for the rebrokerage of an academy with a Grade 4 Ofsted rating (i.e. even if the academy lifts out of Grade 4, the FNtI will enable the DfE to terminate the funding agreement).

This is a tough, unpredictable intervention regime for trusts, particularly because the more recent editions of the funding agreement do not include a power by a trust to terminate an academy’s supplemental funding agreement because the budget of that particular academy is going to cause the Trust to become insolvent. Under the current version of the funding agreement (which the DfE is pressing all trusts to adopt for all their academies), only the Secretary of State has the option under the funding agreement to terminate it when a trust is insolvent. Consequently, trusts are advised to seek professional advice immediately if there is any risk of insolvency taking place and then engage fully with the ESFA to prevent it pulling the FNtI trigger. This is particularly true in a climate where the DfE has only discretion (not a duty) to indemnify a Trust for the financial consequences of terminating a funding agreement, meaning in particular that it is not certain that the ESFA will pay for any remaining deficit relating to a re-brokered academy. There is also some evidence of the ESFA taking a stronger line with Trustees regarding their governance of a deficit situation, and it is possible that could result in personal liability in extreme cases. In short, for academies in trouble there is little mercy in the current system, so Trusts are encouraged to tackle trouble early and with clear-sighted determination.

Stone King LLP is a CST Platinum Partner.

If you would like to discuss this article further, please contact Roger Inman, Partner and Head of Education at Stone King LLP via