Protecting your school and your board: A guide to trustee and governor duties in difficult times

The financial landscape for schools across England and Wales has shifted markedly in recent years. A combination of rising employer costs, new tax burdens and adverse demographic trends is placing significant strain on finances in both the state and independent sectors. For governing bodies, trustees and headteachers, these pressures call not only for leadership and careful financial stewardship, but also for clarity on the legal framework that applies when financial distress emerges – so that decisions taken to stabilise and, where possible, restore the school are made with confidence.

What is the insolvency twilight zone?

The “insolvency twilight zone” describes the period when a school is not yet formally unable to pay its debts, but insolvency has become a real (albeit not inevitable) risk. This may arise where pupil numbers are falling, a material funding stream is at risk, or cost pressures are escalating and a sustainable solution is not yet in place.

It is at this stage, the governance and decision-making context changes materially. Trustees and directors must move from focusing solely on the school’s charitable or educational objectives to giving proper and active regard to the interests of creditors – such as suppliers, lenders, landlords and staff, as well as any other parties to whom money is owed. Taking appropriate advice and demonstrating that creditor interests have been considered can help protect both the school and the individuals involved. Conversely, failing to make this shift at the right time can result in personal exposure to claims by a future administrator or liquidator (including in relation to wrongful trading, preferences and transactions at an undervalue). Claims can be brought against trustees who held office within the three years prior to insolvency; stepping down once matters become difficult does not of itself remove risk.

Why more schools are approaching the twilight zone

The employer contribution rate to the Teachers’ Pension Scheme increased from 16.48% in 2019 to 28.68% from April 2024. For a school employing 50 teachers on an average salary of £40,000, this takes the annual employer pension cost to approximately £573,600, up from £329,600 at pre-2019 rates. For many schools, increases of this scale cannot be accommodated without some combination of higher fees and material cost reduction, neither of which is always feasible in practice.

The introduction of VAT on independent school fees in January 2025 has further intensified these pressures. Schools must decide whether to pass the additional cost on to parents -potentially affecting demand – or to absorb it, placing further strain on already constrained operating margins. For smaller independent schools without significant reserves, this change can be sufficient to move a previously sustainable budget into deficit.

At the same time, the total fertility rate in England and Wales has fallen to around 1.41 children per woman (the lowest level on record), and research suggests that falling primary rolls could leave the equivalent of around 800 one-form-entry primary schools surplus to requirements by 2029. The closure of Brookes UK School illustrates how quickly sustained declines in enrolment can undermine a school’s financial viability. Nor is this pressure confined to the independent sector: rural maintained schools, and schools in areas experiencing sustained demographic contraction, face similar challenges.

Challenging operational and financial situations often do not align neatly with charitable trustee duties and the charitable objectives and Trustees can find themselves in a conundrum that often benefits from independent professional guidance to navigate confidently.

Practical steps for trustees and governors

If these (or similar) pressures are affecting your school, it may be moving towards the insolvency twilight zone. The opportunity, however, is that early, well-documented action can

stabilise the position, preserve options and support a successful turnaround. A well-advised Governing Body or Bursar should:

• Maintain a clear view of the financial position. Keep a robust cash-flow forecast (ideally on a rolling 13-week basis) and undertake regular scenario testing. Include non-routine costs that may arise in distress situations, such as redundancy liabilities, lease dilapidations and professional fees;
• Have a longer-term business plan which identifies risks and opportunities in key areas that drive profitability for the school, such as admission and enrolment. Preventing leakage in such areas is key. Importantly, track progress against key metrics and take action if things are not tracking to budget/plan;
• Understand how duties evolve as insolvency risk increases. In the twilight zone, decision-making must take proper account of creditors’ interests. Avoid steps that could be challenged later, including preferential treatment of particular creditors, asset disposals at an undervalue, or taking on credit that the school is unlikely to be able to repay;
• Maintain an audit trail of decisions. Consider meeting more frequently, and ensure board papers and minutes record the information considered, the options evaluated and the rationale for key decisions. A clear record can be critical if decisions are later scrutinised by an administrator or liquidator; and
• Take advice early. Timely legal and restructuring input can help preserve optionality, support orderly engagement with stakeholders, and reduce the risk of personal exposure. In practice, once creditor pressure increases and confidence begins to deteriorate, boards can be forced into reactive, short-term decisions. Early, structured engagement with advisers typically widens the range of practical options available and can support a turnaround, safeguarding the school’s future.

If you would like to discuss your school’s position, or the practical next steps that may be appropriate at this stage, please contact our team.