Guidance

College requirements regarding asset disposals

Updated 12 April 2023

Applies to England

Purpose

1: This document is to help colleges understand:

• the procedures that must be followed when a college intends to dispose of a fixed asset
• the restrictions regarding how the college may apply the proceeds on any such disposal
• when and how to seek approval from the Department for Education (DfE) for using the proceeds of asset disposal when required.

2: It is one of a series of guides issued by the Education and Skills Funding Agency (ESFA) following the decision of the Office for National Statistics (ONS) in November 2022 to classify the English further education (FE) college sector as central government. The outline of the financial delegations concerning colleges was set out in the “dear accounting officer” letter of 29 November 2022. This guide introduces a modification to the rules concerning asset disposals set out in that letter and has immediate effect.

Status

3: This guide explains requirements for colleges and their subsidiaries, which arise from their status as central government bodies, as well as providing guidance in respect of those requirements. The overall requirements for all central government bodies are set out in HM Treasury’s Managing Public Money (MPM). This publication seeks to explain those requirements in the context of the FE college sector.

4: The requirements set out in this guide will remain in force until such time as it is withdrawn or superseded.

Who is this publication for?

5: This guide is primarily for use by:

• college finance directors and accounting officers, and
• college governors as charity trustees.

6: Colleges include further education colleges, sixth for colleges and designated institutions under the Further and Higher Education Act 1992. This guide also covers their subsidiaries (i.e. references to “colleges” in this guide should be taken to mean “colleges and subsidiaries”).

7: College internal and external auditors may also find it helpful in planning their work.

Background

8: When ONS determined that English FE colleges were to be classified to the central government sector, this decision meant that colleges would be required to follow the overall financial control framework for all central government bodies, HM Treasury’s Managing Public Money. MPM provides a framework of financial oversight, whereby the majority of financial decision-making is delegated to operational leadership in government bodies. However, there are certain classes of transactions where additional controls apply. Asset disposal is one of these.

Asset disposals

9: Colleges can dispose of fixed assets without DfE’s approval. This is subject to:

• the proposed disposal not being novel, contentious or repercussive, and
• maintaining the principles of regularity, propriety and value for money[1].

10: However, there are restrictions regarding how a college may use the proceeds of any fixed asset disposal, depending upon the type of asset.

Moveable fixed assets

11: In the case of moveable fixed assets (i.e. non land and buildings such as vehicles, IT kit, etc.) the college must consider:

• whether the asset or assets concerned may have been acquired with the assistance of a grant or donation from a third party, including (but not limited to) DfE and whether the conditions of any such grant or donation set terms relating to the disposal or the use of proceeds of disposal .

• whether there are plans in place to ensure that:

  • investment in moveable fixed assets is sufficient to ensure the ongoing ability of the college to deliver appropriate provision for learners is not depleted, and
  • moveable fixed assets can be replaced and/or upgraded when they reach the end of their economic life, if required

Subject to the above, the college may apply the proceeds of disposal (if any) at its own discretion, subject to the usual considerations as set out in paragraph 9 above.

Land and buildings

12: The college should have an estates strategy that underpins the long-term sustainability of the operation. However, it is recognised that over time certain elements of the estate may become redundant and/or it may make business sense to disinvest in certain elements of the estate and thereby unlock funds to invest in more relevant capital provision. For that reason, in the case of land and buildings (whether freehold or leasehold), the proceeds of disposal must be used for capital reinvestment in further fixed assets and/or to:

• repay loans, to DfE and to banks
• repay any overpayments of ESFA/DfE grants, or satisfy grant conditions where a repayment to ESFA/DfE is due (for example overage)
• exceptionally, provide working capital for colleges to avoid the risk of insolvency (see para below)

13: If a college wishes to use the proceeds from the disposal of land and buildings for the purposes of avoiding insolvency (for example, to fund a restructuring programme) then it must first seek the approval of DfE. In accordance with the framework for college oversight: support and intervention, colleges should engage with DfE at the earliest practical opportunity to consider available options. Given that sale of land and buildings can be particularly protracted, colleges should seek permission to use the proceeds in this way in good time and well in advance of the disposal itself.

Novel, contentious and repercussive disposals

14: Colleges need to consider whether any particular disposal could be considered novel, contentious or repercussive. ESFA has produced separate guidance on transactions that may be considered to be novel, contentious or repercussive, which stresses that it is not practical to set out an exhaustive list of examples. In the case of asset disposals, such instances could include (but are not limited to) sale and lease-back arrangements, disposal of sites that are considered a community amenity, disposals to a related party, gifts or disposals that are below market value. The perception of the transaction may be as important as its substance, and in such cases, the college must ask DfE for permission for the disposal itself as well as for the application of the proceeds.

Disposals and proceeds

15: For the avoidance of doubt, by disposal we mean any process whereby title to an asset passes to a third party such as sale, conveyance, auction, scrappage, gifting, etc. By land and buildings we mean any title or interest in land and/or buildings. By proceeds we mean net proceeds, i.e. after the costs of sale (e.g. professional fees) have been deducted, and also after any finance secured over the asset by a third party such as a bank has been settled.

16: The net proceeds of any fixed asset disposal that are being held as cash pending reinvestment or repayment of overpaid grant or other debt should be accounted for as restricted cash and so will not count as cash for the purposes of the solvency ratio used to determine the college’s financial health.

DfE approval process

17: As noted above, if colleges intend to make use of the proceeds of asset disposal for working capital to avoid insolvency, or for any other purpose beyond the permissions outlined in this guide, they must apply to DfE for approval to do so. In the case of purposes that are novel, contentious or repercussive, DfE may need to consult HMT.

18: Colleges should use the DfE college approvals form to request permission for any transactions beyond the permissions outlined above.

19: Where approval is not required by DfE, you still must be able to show you applied the proper scrutiny to the case. Relevant decisions must be documented and their benefits outlined in a business case. This must be provided to DfE in a timely manner, if requested.

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[1] Please refer to the glossary from page 188 of Managing Public Money for an explanation of these terms