COVID-19 and charities: Independent Schools FAQs
We continue our series of FAQs for our charities COVID-19 Hub with a set specifically for independent schools. The lockdown, as well as the social distancing measures that will likely be in place when we embark on our ‘new normal’, pose a number of specific problems for independent schools. We consider that the selection of questions below cover the main areas of concern that we have seen in the sector, but please do get in touch with your usual BDB Pitmans contact if there is something else you would like to discuss.
We will be posting these responses on our COVID-19 Hub. Here you can also access further updates and content from our charities team, as well as content in respect of wider COVID-19 related concerns, beyond those specific to the charity sector.
1 Government announcements make it clear that schools will be asked to return pupils in phases, as part of the ‘exit strategy’ for returning things to normal post-lockdown. How can we prepare for this?
When providing submissions to the Commons Education Committee on 29 April, the Education Secretary, Gavin Williamson, explained that schools could be asked to engage a ‘phased’ return, whereby children would be incrementally allowed back to school. Although he explained that the government intends to give as much notice as possible, the Education Secretary did not say when the phased return might be implemented. It does appear however that the government wishes to ensure continuity of education, and so schools are likely to be amongst the first organisations allowed to re-open possibly immediately after half term.
Although we do not have a clear idea from the government on how this ‘new normal’ might be implemented, this could include measures such as allowing only certain ‘critical’ year groups back before others, different year groups in school on different days of the week, staggered start times, lunch times and lesson change overs. Therefore, whether schools are in the first or any subsequent wave of the exit strategy, governors and senior leadership teams should be looking at how they can implement these measures, while protecting their pupils and staff, including considering how they can all maintain a safe distance from each other. The government has provided guidance on implementing social distancing in education and on isolation for residential educational settings which governors and senior leadership teams may find useful.
Governors will have a number of short term concerns, such as practicalities around how to ensure effective collective decision making by remote means, securing cash flow, and potentially furloughing staff, for example. However, governors should also give consideration to medium and long term scenario planning, discussing the impacts of exit strategies on pupils, staff and income.
Governors should (as usual) act prudently, and with reasonable care and skill to consider the information they have available to them to create plans and strategies for schools returning, putting contingencies in place where appropriate. As not all of the information is available yet, governors should take account of the relevant factors reasonably available at the time of making decisions, being sure to take comprehensive minutes and record key factors and their decisions. Whilst most governing bodies only meet in full once a term we recommend that Chairs consider calling meetings on a more regular basis to ensure that all governors are involved in making key decisions to protect the long term future of their school.
If governors and senior leadership teams have not already reviewed school policies, this might also be necessary, given that, for example in respect of safeguarding, there may be fewer people in school over the coming months to oversee pupils. Planning will facilitate conversations with staff and stakeholders early on, to ensure there is buy-in on any newly proposed policy. Early consideration will also allow governors to seek other types of insurance (if they deem it necessary), as well as new equipment or protective wear for staff and pupils, to facilitate the proposed phased return.
Governors also have a duty to avoid exposing their charity’s assets, beneficiaries and reputation to undue risk. As such, governors should review their school’s risk management statement or register, or indeed create a specific document specifically for this pandemic. The Charity Commission’s guidance, The Essential Trustee, provides some useful reminders for governors (in their capacity as charity trustees) on identifying risks, as well as generally on trustees’ duties and responsibilities. The Charity Commission’s guidance on risk management may also prove useful at this time.
Aside from the duties governors owe to the school and its pupils as charity trustees, there will be the duty governors owe to parents to fulfil the services agreed in the parent contract. Ensuring that a school has a robust response to the ‘new normal’ will of course not only help maintain the best possible level of service (in the circumstances) and the relationship with parents, but may also uphold the school’s reputation, potentially attracting new students in the future.
2 We’ve had to cancel a number of events, as well as summer schools – what liability is there for us because of this?
Liability and who is responsible for costs usually depends on the construction of the contract in place for the relevant event. Of particular importance to the current circumstances will be whether the coronavirus outbreak (or more generally a pandemic), and/or the government measures taken to stop the virus spreading, could be considered a ‘force majeure’ event under the contract.
Force majeure clauses usually appear in contracts to cover what happens if something takes place which is outside of the control of any or all parties. Such circumstances are usually defined by a number of situations. Alongside the summary below, governors and senior leadership teams may find it useful to consider this set of FAQs produced by our commercial team which provides more detail on what force majeure means and how such provisions can be applied in response to the COVID-19 crisis.
In the UK there is no statutory or common law definition of ‘force majeure’ or ‘force majeure event’, meaning it is not really possible to determine a generic position as contracting parties are free to decide on the terms during negotiations. Parties can also decide that the definition be an exhaustive or non-exhaustive list, as well agreeing what should happen if such situations arise, so that the proposed solution is both proportionate to the contract and satisfactory to all parties. Schools should therefore consider each contract carefully to decide whether the circumstances leading to an event being cancelled are covered by the definition of force majeure and what consequences are then provided for in the contract.
As an aside, as part of wider prudent strategic planning, we suggest that all schools ensure that they include robust force majeure clauses in their contracts from here on in, if they are not already doing so.
Other points to consider
If the force majeure clause does not adequately cover current circumstances, then there may be other saving provisions, such as cancellation and termination rights under the contract. Considering other legal concepts such as ‘frustration of performance’ may also prove useful. As such, if you are considering cancelling an event, or you would like to talk about the construction of a contract (whether in relation to force majeure provisions or something else), then please do get in touch with your usual BDB Pitmans contact.
If governors discern that their school is liable, then it is likely that the first step will be to consult insurance policies. Governors should also note that even if there are force majeure provisions, there may also be a duty to mitigate any losses which the parties might experience because the contract cannot be performed. The latter may, incidentally, extend to the provisions of a parent contract, in so far as the relevant provisions could require a school to minimise the effect of the force majeure event on the service it provides parents; but again it is a matter of construction.
Aside from liability
Aside from strict legal interpretation, governors should also discuss how to maintain good relationships with key partners; in the example of summer schools, these people may help with future cash flow. Importantly therefore, as charity trustees, governors should also be clear on how they will protect charitable funds, whilst also considering how to balance the need to maintain a charity’s reputation and future income streams.
As concerns around cancelling events may therefore stretch beyond just liability, our finance and funding FAQs set out a number of options available to charities, which governors may wish to consider.
3 Because our school is currently shut, are we able to make a claim against our business interruption insurance cover?
If governors and senior leadership teams have not already looked into this, they should consider this at the first opportunity given that some insurers could require schools to notify them of a loss within a certain period, even though it may be difficult to quantify at the moment what any loss might be; if that is the case then it may be that at this stage schools simply put insurers on notice.
Whether schools can claim will depend on the terms of their insurance policy. Claims for business interruptions in the current circumstances tend to be attributable to two main possible causes – coronavirus itself, or being unable to fully access the school because of the measures the government has taken to stop the virus spreading.
Governors should therefore look at whether or not their school is covered for interruptions caused by these two events (our experience is that pandemics are usually covered in an ‘extension’ to a standard policy), and it is important to note that even if the outbreak of disease and/or pandemics are covered, governors should establish whether coronavirus is specifically listed and covered; as a new virus it may not be included.
If claiming because of the outbreak of coronavirus is not possible, it may still be that governors can claim under the ‘prevention from access’ provisions of a policy as the loss is attributable to the school being closed to the majority of pupils as a result of central government directives (and governors should ensure they note whether there is any caveat in their insurance about whether directives must come from local or central government). By this, it may be that governors can recover loss resulting from interruption of, or interference with, the business carried on at a school’s premises, to include access to or the use of premises being ‘prevented or hindered’. As such, even though schools are still open to the children of key workers, government measures have interfered with and hindered the use of schools at capacity, therefore preventing use by the majority of fee-paying pupils until further notice.
If governors can make a claim, then it may be possible to recover:
- the loss of revenue and the added cost of working during the ‘indemnity period’, when compared to the equivalent period last year; and/or
- any net increase in the cost of working directly resulting from the majority being unable to access the school site.
The reduced income resulting from lesser fees offered to parents for the summer terms (because of the remote provision of education) could be a recoverable loss of revenue because the reduction is a direct result of the majority being prevented from entering the school and the more limited education provision provided online. Governors may therefore also wish to look into this.
The Association of British Insurers has a helpful guide on business interruption insurance, which includes an overview on the circumstances which might lead to a claim and how to make one. Governors may also wish to consider our guidance on coronavirus and business insurance cover.
Whilst on the topic of insurance, governors may wish to consider what cover they may need whilst looking after a significantly reduced number of children. Governors may therefore wish to review existing policies, or seek new insurance, when considering the other ramifications that a partially closed school brings in terms of business generation, cash-flow, health and safety, and safeguarding, for example.
Business interruption loan scheme
In consideration of other ‘business interruption’ measures, it is worth noting here that the Coronavirus Business Interruption Loan Scheme offers loans of up to £5 million through the British Business Bank, provided at least 50% of the applicant’s income is derived from its trading activity. Because of this, it has not been entirely clear if many charities are eligible, but as independent schools generate trading income through fees (rather than donations, for example), some schools have already investigated taking out these loans.
However, the British Business Bank has now confirmed in the FAQs on its website that the Coronavirus Business Interruption Loan Scheme has been opened up more generally to registered charities, for which the 50% trading requirement does not apply. Governors may wish to consider this if they have not already done so (or indeed again, now that the terms are a little clearer).
4 Should we refund any of the school fees we have already received, and if so, can we apply these as credit against future fees?
Governors at most schools will be looking to ensure immediate cash flow, whilst at the same time trying to make sure parents are satisfied with the school’s approach on this matter, therefore keeping them onside. Refunding fees, having calculated savings made for example, may therefore be one way of balancing these two interests.
The school’s obligations to parents is also important in consideration of the Consumer Rights Act 2015 (which governors cannot contract out of). This legislation provides consumers (in this case parents) with various rights including the potential right for a price reduction where the services provided are less than those contracted for. Whilst your school might be providing comprehensive remote learning packages, it will be important to consider these obligations in respect of services not received, such as boarding, sport and extra-curricular activities.
As such, even if you have already acted on this point, it is important that governors continue to give time and careful consideration to school fees, both for reputational reasons and for the legal implications of their decisions.
Ex gratia payments
Perhaps the most pressing of the legal implications in respect of returning funds to parents (as opposed to applying discounts, see below) concerns ‘ex gratia’ payments. These are payments which are not linked to charitable activity, which a charity is not legally but morally compelled to make. So, generally speaking, charities which run independent schools tend to have charitable objects to advance education. As such, making refunds to parents, be that to share savings or for services not received, will not be in pursuit of those objects, and so could result in governors acting in breach of trust. Where a payment would be an ex gratia payment, the charity trustees cannot make the payment without first applying to the Charity Commission for consent.
We would hope that the Charity Commission would be sympathetic to such an application, but it will be for the governors to make the case as to why they they feel morally compelled to make the payment in the circumstances. Governors considering an ex gratia payment should also factor in the time it will take to make the application and obtain consent (if given), so if this is something that you consider you might need, then please get in touch with us as soon as possible, even if you do not anticipate being able to calculate the amount of the refund for some months.
Governors will have already decided how to treat the fees for this summer term, however as summarised above in response to the first FAQ, there could be a ‘phased return’ for pupils. As such, futures fees may also be discounted, and so governors may wish to look at what alternatives are available to ex gratia payments. The following points will also be relevant to those schools who have invoiced for the first half of the summer term, but are yet to raise an invoice for the second half, pending further information about lockdown measures.
First, there could be ways to agree a school’s parent contract to reduce the amount owed to the school, so that the sum never comes to the school in the first place (and so avoids consideration of ex gratia payments).
It will depend on the terms of the contract, but a number of schools are already adopting this approach, so that savings are shared in anticipation of lower running costs, rather than making an assessment at the end of term and then redistributing the savings. Ex gratia payments are also made when trustees forego sums pledged (or, in this case do not claim all the sum due under of a raised invoice).
There are stumbling blocks which governors may have already encountered, predominately, where to pitch the discount. A significant discount could mean that a school is left short of cash, and a small discount may mean there are ex gratia payments to consider in any case. Another consideration is that some parents will have paid the year’s fees in advance, and so have made payment in full on the back of invoices already due – in this case it may still be necessary to consider an ex gratia payment if there is a desire to pass on a saving to these parents.
A further option could be to amend the parent contract so that a school has a contractual (and therefore legal and not moral) obligation to return savings to parents. This of course depends on whether the school’s parent contract permits variations. Such a variation therefore would facilitate a different way of calculating fees, although any school engaging this will have to be careful that the construction of the obligation retains discretion for the school on the returned amounts. In making any such decision to vary the contract, the governors will also need to be clear that doing so is in the best interests of the charity.
When to pass on savings
If schools have chosen to calculate a ‘refund’ (rather than having invoiced for a lesser amount upfront), governors may be considering when it is best to assess the schools’ finances and calculate this refund. Doing so at the beginning of the autumn term may allow for a more holistic approach, providing schools with a better strategic view on what they can safely return. Governors and senior leadership teams may also favour providing some breathing space for their school particularly as calculating refunds in the autumn might help keep more funds on the balance sheet, particularly if a school has had to cancel events such as summer schools. Alternative considerations here are how parents might feel about this, and importantly what to do for pupils leaving at the end of the summer term.
If Governors calculate sums due at the end of this academic year, for example, but propose to allow parents to apply the savings as credit against future fees, governors should look at this intention alongside their school’s parent contract and their usual consumer credit considerations.
The Competition and Markets has written generally to independent schools (via sector bodies), warning schools of the danger of collusion and fixing fee discounts at this time. This is an added reminder therefore that governors should consider what is in the best interests of their school and then apply any discounts, or share any savings accordingly.
Such an approach is supported by the ISA which has previously suggested that schools ‘rebate’ the cost of things that clearly can’t be provided at the moment, such as school meals and extra-circular activities, but otherwise make decisions as per the requirements of individual schools – so depending on a need to keep cash flowing when balanced with a need to keep parents onside. The ISC suggests it is for individual schools to consider what works best for them (depending on policies and contracts with parents).
At this stage of the summer term, given that parents’ reactions may be a little clearer, governors may be turning their minds to September’s fees (or as noted above, to the second half of the summer term’s fees). Governors clearly will be able to reflect on what might have worked this time round, and so in consideration of that, as well as the approaches set out above, do let us know if you would like to discuss the best option for your school.
5 We know the government has announced measures which are aimed at helping charities, but our understanding is that schools won’t be eligible for these? Is there other help available?
On 8 April 2020, the Government announced it was making £750 million available to charities to assist them at this difficult time. However, it is unlikely that charitable independent schools will benefit.
£360 million will be provided as grant funding to be directly allocated by government departments to charities they consider provide key services and support vulnerable people during the crisis. £200 million of those grants will support hospices, and the rest will go to organisations supporting the NHS, and those assisting in response to the crisis, such as charities providing financial advice, or those responding to the increase in domestic abuse.
£370 million will be for small and medium-sized community focused charities, including those delivering food and essential medicines. The last £20 million has been pledged to the National Emergencies Trust.
However, as noted previously, there may be other options available to schools, including claims against business interruption insurance, or a business interruption loan. Governors may find it useful to consider our set of FAQs on charity finance and funding which gives further details of other sources of assistance available to charities. Governors should ensure they fully explore what assistance is available, to provide their charity with sufficient resources to meet its charitable aims and public benefit requirement in the short and long term.
Like a lot of charities, it may be that governors are able to call on a school’s network of supporters, and parents, to help them during this difficult time. Whilst schools are shut, meaning that the service they are providing to parents is less than they would usually receive for the fees they pay (whether discounted or otherwise, as discussed in the FAQ above), it may be that governors do not wish to approach parents. However, there will be alumni networks and other key stakeholders who may be willing to step up at such times, should a school require assistance. It could also be that schools can look to release restrictions around permanently endowed assets, or consolidate a number of named funds, to ensure these gifts are more useful to the school. If you would like to discuss grant funding arrangements, or other sources of fundraising, then please do get in touch with your usual BDB Pitmans contact.
6 With children at home, what are our added safeguarding responsibilities at this time?
Over the last few years, the Charity Commission has keenly publicised the need for strong safeguarding measures, and it continues with this during the current circumstances. On its COVID-19 FAQs, the Charity Commission stresses the importance of keeping people safe and the fact that its safeguarding and protecting people guidance is a source of support. Governors must therefore be sure to maintain high standards in this area, albeit navigating different challenges whilst children, and staff, work at home; schools must continue to identify, assess and mitigate safeguarding risks.
The Department for Education guidance on safeguarding in schools during the pandemic states that the principles of Keeping Children Safe in Education (2019) still apply, as would be expected. This includes the requirements that the best interests of children should continue to come first and if anyone has a safeguarding concern it should be acted on immediately. Schools will therefore need to ensure that a DSL (Designated Safeguarding Lead) or deputy should be available at all times, particularly to ensure children continue to be protected when they are working and meeting with staff and peers online.
If they have not already done so, governors and senior leadership teams should be reviewing their safeguarding policies, so that they are appropriate to the new circumstances in which schools are providing education. This will likely include alternative means of contact (where possible) and providing suitable alternatives if key people fall ill, for example. Governors should also look at other ways of investigating allegations, for example, making sure they have the tools and know-how they need to look into matters online. All these measures should be kept under review to maintain safeguarding standards throughout this time, most importantly so that safeguarding concerns or allegations continue to be responded to quickly and comprehensively. Governors should ensure that these measures are reflected in their school’s safeguarding policies and in consultation with the LADO (Local Authority Designated Officer).
Governors will also need to consider safeguarding if schools begin working together, for example if schools local to one another start sharing online classes. Governors must take steps to ensure that clear safeguarding procedures are in place between them, so that they are to the same standard as newly adapted practice for their own school.
If a school does not already have one, an online resources hub with contact information, or a reporting place would be useful. This could include resources specifically for children with special education needs, as well as links to online resources and helplines provided by organisations such as the NSPCC and Childline.
Safeguarding responsibilities extend beyond pupils, and governors should also be considering what steps they should be taking to ensure staff are also safe at this time, be that in response to added pressure on their home life, and to operating remotely. Governors should therefore ensure staff wellbeing is covered in safeguarding discussions.
Governors should also consider their staff’s health and safety, for example because they are working at home on laptops, without having had proper workplace assessments.
Some schools and senior leadership teams may be looking at ways to help others during this crisis, and some clients are starting to consider how they can maintain or develop new links with their community. This could be with local state schools, in part to continue to meet their public benefit requirement. The Children’s Commission for England published a report on 25 April 2020 highlighting the current plight of vulnerable children in some areas. There may be scope here for independent schools which have capacity to extend support to state schools which might require this; such schools should collaborate on safeguarding concerns in the same way as suggested above for groups of local independent schools.
It will be important for governors to make these difficult decisions in a timely manner, making decisions collectively by considering all the information they have available to them at the time. Those on the board of governors with additional responsibilities for safeguarding should ensure these issues are given sufficient time and priority. If you are having difficulties in holding meetings and making decisions at this time then you may wish to consider the points raised in our FAQs looking at charity governance and decision making in the current circumstances.
7 We have furloughed staff – should we be reporting this, or matters such as the drop in our income and activities, to the Charity Commission?
Updated on 10 June 2020:
The Charity Commission’s FAQs, Coronavirus (COVID-19) guidance for the charity sector, acknowledges the challenges charities face at this time. The Charity Commission’s initial approach on reporting serious incidents was one of ‘business as usual’, stating that: ‘it is ultimately the responsibility of the charity trustees to continue to report serious incidents using our current guidelines, and we will continue to ask trustees to use their judgement in deciding whether an incident is significant in the context of their charity and should be reported to us’.
However, on 3 June 2020, the Commission issued supplementary guidance and examples on reporting serious incidents in the pandemic – see our blog post here for further details.
Governors should therefore consider whether events are reportable in the context of the Charity Commission’s serious incident reporting guidance, as supplemented by the specific examples in the supplementary guidance.
Generally speaking, reportable events fall into the following four main categories:
- harm to people who come into contact with your charity through its work;
- loss of your charity’s money or assets;
- damage to your charity’s property; and
- harm to your charity’s work or reputation.
Furloughing of staff and other pandemic impacts such as a drop in income are covered specifically in the table of examples in the supplementary guidance. The message from the Commission from those examples is that it is a question of the impact of the incident on the charity (ie the school) which is significant. For example, according to the Commission’s new examples, a decision to furlough staff will be reportable if, as a result, ‘the charity is:
- unable to deliver vital services to at risk beneficiaries; and/or
- insolvent and/or forced to close permanently, for example because the furloughing of staff has directly led to the loss of a major income stream; or
- highly likely to be insolvent and/or forced to close permanently within the next 12 months’.
The Commission’s examples provide that a decision to furlough some or all of a charity’s staff is not reportable if ‘it hasn’t resulted in one or more of the impacts listed [above]’.
In terms of what financial loss means in this context, the usual guidance can be found in the table on page 3 of this Charity Commission document, but the Commission’s supplementary guidance is that the usual financial thresholds do not apply in pandemic incidents – again, it is a question of how the loss of income affects a charity’s ability to carry out its charitable activities.
If governors have had to furlough staff for the ongoing long-term viability of the school, and/or suffered other impacts from the pandemic, then they should review the Commission’s guidance, discuss the matter and decide collectively whether reporting to the Charity Commission would be prudent. If governors decide not to report an incident in reliance upon the Commission’s guidance, it is important that they record their decision, and the reason for it, carefully, in case they are later asked to explain or justify that decision.
If you are concerned about an incident which has arisen within your school, or are unsure about whether an incident needs reporting, please do contact your usual BDB Pitmans contact and we will be happy to assist.
More information is being provided daily by government, and the government is regularly updating its guidance for schools and other educational settings during the Coronavirus.
There is however still a lot of uncertainty. Because of this, it will be crucial that as you face the prospect of having to make important decisions for your school, your decision-making processes take account of strong governance practices – you should make sure you are recording decisions appropriately, taking minutes and making notes of the information you had available to you at the time. As mentioned above the Chair might also consider whether the Governing Body should meet more frequently during the coming months.
We will be writing up further FAQs soon, but do let us know if you have any urgent questions in the meantime.