Technical and Further Education Bill

Written evidence submitted by Neil Phillips (TFEB 01)

Technical and Further Education Bill 2016

Comments on the provisions for Governors’ Liability

As someone who has recently been appointed as a governor of a local college, I wish to comment on the proposed introduction of provisions that will make governors possibly liable for wrongful trading and could bring about disqualification as company director.

1. I feel strongly that where a college is in financial difficulties, the proposed legislation will have the effect of deterring current governors from remaining on a Board and deterring new governors from joining a Board.

2. There are numerous colleges currently facing financial difficulties and to tackle the problems it is important to strengthen boards of governors where needed by attracting people with the appropriate skills and experience. The current proposal to make governors liable for wrongful trading or possible disqualification will mean that talented people who would otherwise contribute to strengthening a college would not wish to accept appointment.

3. Governors usually give up their time for no financial reward and yet, under the current proposals, they face the risk of being personally liable for wrongful trading and of being disqualified as a director. If their professional occupation depends on them being a director of their company, a disqualification order could easily destroy their livelihood. I cannot see why any governor who is a governor of a college at risk of insolvency would wish to remain a governor given these risks that they are running.

4. A governor who is governor of a college in financial difficulties will feel very vulnerable to a possible claim because of the subjective nature of what constitutes ‘wrongful trading’. Also, whereas a body or agency that wishes to prosecute a governor is likely to be able to fund legal fees to fight a court case, an individual governor may not have the means to finance a court battle and so might not be able to fight to defend himself.

5. The intention of the legislation is understood, which is to introduce an insolvency regime similar to that for the corporate sector. However, there is a significant difference between a governor and a company director and so it is unfair that governors should be subject to the same sanctions as company directors. The significant difference is that governors are not in a position to know what is happening in the college on a day to day basis because they normally meet quite infrequently and rely on the staff at the college to bring problems to their attention. Whereas a company director keeps a very close eye on the running of his or her company and should have a close understanding of the company‘s cashflow position, a governor is very much in the hands of the college finance staff and to some degree the college auditors.

6. My proposed amendments to the Bill are to restrict the exposure to a claim of wrongful trading and disqualification to the Principal and Chief Financial Officer (if he acted as if he were a governor) as they will be the closest to the cashflow position of the college. However, I recognise that governors must be held accountable for financial failure in some instances. My proposal is that where the board of governors approve a set of audited accounts prepared on a going concern basis which has been the subject of a ‘Going concern qualification’ or an ‘Emphasis of Matter’ in the Audit report, if the college then enters insolvency within 6 months from the date of approval of accounts and it is established that the board of governors did not have proper grounds for concluding that the college was a going concern when approving the audited accounts, I believe that the governors who had been governors for at least 6 months at the date of approval of the accounts should be potentially liable for wrongful trading and/or disqualification in that instance. What this provision seeks to do is to punish those governors who did not consider the solvency of the college with sufficient care at the time of approving the audited accounts.

15 November 2016

 

Prepared 22nd November 2016