Novel, Contentious and Repercussive Transactions

The Education and Skills Funding Agency (ESFA) have renamed the Academies Financial Handbook -  The Academy Trust Handbook.

This is a subtle change but reflects the fact that this document covers far more ground than just the financial aspects of operating a Trust.

One thing that remains consistent with the ATH, despite the change in name, is the concept of “novel, contentious and repercussive transactions”.

These are transactions that are outside of a Trust’s normal course of business or expertise, might cause criticism for the Trust, or could lead to other Trusts following suit.  If the Board deem that a transaction is novel, contentious or repercussive, then ESFA approval must be sought before the transaction is entered into.

Below we have looked at three transactions that we have come across in the sector, and concluded on whether they are novel, contentious or repercussive.

Leaving parties

A surprisingly common query we get is around leaving parties, particularly for senior members of staff.

Whether this is novel or contentious will be determined by the amount and the source of the funding for it.

A Trust once asked if a leaving party for the Head, costing £6,000 and funded out of restricted reserves was novel or contentious. This is clearly a contentious transaction as the value appears excessive, as well as the fact the Trust wanted to use reserves restricted for education to fund it.

As a result, the Trust didn’t go ahead with the party.

In other examples, we have seen leaving parties that have been funded out of PTA generated income and have been in the hundreds of pounds. In this instance the transaction does not usually form part of the Trust's transactions as it is not Trust money so is not subject to novel or contentious regulations.

Finance leases

Another common scenario we see in our client base are schemes for LED lighting, laptops and astro turf sports facilities that involve complex arrangements and are advertised as an operating lease rather than finance lease.

The operating/finance lease aspect of these transactions is captured by the Leasing and Borrowing sections of the ATH (Sections 5.25 and 5.33), and Trusts must always seek prior approval from the ESFA where they believe they are entering into a finance lease.

The complex nature of these schemes, that often involve intermediary companies and ambiguous terms and conditions, is what makes them potentially novel and contentious.

This is an area where it is worth seeking advice before committing to anything.

Surplus assets

Surplus land and buildings are not something that are prevalent in the sector, but there are some Trusts who have more land and building stock than they currently need.

We have seen in recent years a move to convert these assets into income-generating assets, usually by letting to a commercial entity.

This has particularly been the case with unused land being let out for car parking space.

Section 5.23 of the ATH covers disposal of assets and has a section on leasing. The aspect of such a transaction that could make it novel and contentious is the process which the Trust goes through and the entity they transact with.

It is important that the Board considers the future needs of the Trust and the impact on stakeholders of any transaction, and clearly demonstrates the thought process and decision making in its minutes. It is also important that the entity transacted with is not a related party (without ESFA approval), nor organisation that has objects that conflict with the aims and objectives of the Trust.

In all the instances above the Trust needs to consider the principles of value for money. If the Trust doesn’t consider this or makes a decision that was clearly bad value for money at the outset, then that itself would make a transaction novel and contentious.

A good place to start with a transaction that the Trust believes might be novel and contentious is considering whether they would be happy if the transaction made the headlines in the news, and would they feel comfortable justifying the transaction. If the answer is no, then the transaction should not go ahead, without prior approval from the ESFA.

These kinds of transactions can be subjective, so it is always worth seeking the view of your local Bishop Fleming representative before progressing too far.

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