My Lords, I start by saying that I recognise that the amendment is driven by noble Lords’ good intentions. They are concerned that assets that have been paid for largely by money from the taxpayer should not then find their way into the private sector at an undervalue, when they can then be sold and used to make a profit at the taxpayer’s expense. I recognise and share those concerns. FE colleges are statutory corporations with significant freedoms to deal with their own assets, but the key check on those freedoms is that any such dealing must be in the interests of the colleges’ charitable education—as the noble Lord, Lord Stevenson, said, the basis on which they have their charitable status.
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There are, of course, no restrictions on who solvent colleges can transfer property to unless the property has a covenant on it or a specified interest. Any transfer would need to achieve full value for the college. For example, where the governors of a college sold a building to a private for-profit company, they would have to consider their duties to the college as a charity, which are to achieve fair and full value. The sale proceeds would then, like all assets of the college, have to be used for the education purpose for which the college is established. I remind noble Lords that we are talking only about a situation where a college has failed financially and is insolvent—I hope this is an extreme case—and the Secretary of State has decided that there should be a special administration regime to protect students and provide an orderly process for creditors.
The special administration regime demands that the education administrator must seek to achieve the special objective of avoiding or minimising disruption to the studies of existing students of that college and, as far as it is consistent with the special objective, the best result for creditors, as we have already discussed. If the best way to achieve that and maximise the proceeds of sale for the furtherance of the special objective involves a sale of the college’s assets to a private for-profit company then that should not be ruled out. Indeed, it is likely that in a college insolvency, a buyer might well be from the private sector, and to rule them out of the equation might well result in a lower price being achieved for the asset and consequently less money to further the special objective. It might even mean the difference between some students completing or not completing their courses. For creditors of the college, it might mean that the outcome for them is worse than it needs to be. As I said, obviously the duty will be to achieve full and fair value, not sell at an undervalue.
I spoke—albeit briefly—at Second Reading about the safeguards we are putting in place in the event that the education administrator considers it appropriate to make a scheme to transfer property rights and liabilities of an insolvent body, and I spoke about the quadruple lock. I will expand on the detail of those safeguards. First, unlike solvent operational colleges which may wish to transfer property, if the education administrator decides to make a transfer, he or she is restricted in who they can transfer the assets to. These bodies are prescribed in secondary legislation made under Sections 27B(1) and 33B(1) of the Further and Higher Education Act. They are public sector bodies with educational functions, such as local authorities, colleges and similar public-funded education bodies. In addition, transfers can be made to private companies but, if that is the case, the company must be established for purposes that include the provision of education facilities or services of any description.
Secondly, just as with any other action of the education administrator, any transfer scheme must be for the purposes of achieving a special objective. There must therefore be an educational purpose to the transfer scheme. Thirdly, creditors have a general right of challenge should they consider that the education administrator is not working to fulfil the subsidiary objective of achieving the best result for creditors as a whole, so far as it is consistent with the special objective. Creditors would rightly complain if assets were needlessly transferred on the cheap and, of course, any sale proceeds will be used directly or indirectly for educational purposes. The proceeds may be used to pay for continuing teaching of students so as to achieve the special objective, or to pay other costs of achieving the special objective as well, subject to the objective to pay creditors. Finally, the Secretary of State or Welsh Ministers must approve the proposed transfer scheme. That approval will necessarily include consideration of whether the transfer is for the purpose of achieving the special objective.
To answer the point made by the noble Baroness, Lady Cohen of Pimlico, if the Secretary of State has put funding in, she can decide on a case-by-case basis whether to make funding available for an education administration on the basis of a grant or a loan, and whether any loan should be prioritised in repayment over other creditors or subordinated to be repaid when other creditors, secured and unsecured, have been paid, if remaining funds allow.
I hope that these protections make clear to noble Lords that this is not about the transfer of publicly funded assets to the private sector on the cheap or by way of windfall. It is rightly about putting in place an orderly process for dealing with the assets of an insolvent FE body so as to achieve the special objective of protecting students and the secondary objective of protecting creditors in the event of insolvency.