Questions over repayment of £400k loan arranged by Medway LA to academy being rebrokered

Janet Downs's picture

Medway council considered granting a ‘commercial loan’ to the Delce Academy, Rochester, for a classroom block to house new infant provision, Kent Independent Advice (KIA) reports.

Council documents show the council at the time neither supported nor objected to the proposed expansion of Delce Academy, a junior school run by Castle Trust. This was despite the council accepting that the additional 30 places were not essential.

The extra infant provision, then, was not needed and, as KIA points out, threatened the viability of Medway’s two maintained infant schools.

The Castle Trust requested funding for the new provision from the Education and Skills Funding Agency (ESFA) but this was rejected.   The Trust approached Medway council.

 In considering the request, Medway feared  there would be ‘reputational damage’ to the council if the extra places were not provided.  It said it would take action to avoid the possibility of the academy trust defaulting on repayments of the commercial loan by carrying out ‘due diligence on the schools (sic) ability to repay the loan’.  The document says:

‘…the loan agreement would need to be structured in a way that protects the Council from financial loss, particularly in the event of the academy transferring to another trust.’

At the time, transferring Delce Academy from Castle Trust was hypothetical.  But now it is not.  Following an inadequate Ofsted judgement in May, Delce Academy is to be rebrokered.

This raises several questions if the loan was arranged:

1         Will the unpaid balance of the loan remain with Castle Trust?

2         Will a new trust be willing to take on the unpaid balance plus interest?

3         If not, how will the loan be repaid?

It should be remembered that the commercial loan arranged via Medway council would require repayment by taxpayers since it is taxpayers who finance academies.  The Academies Handbook 2018 says:

Academy trusts must obtain ESFA’s approval for borrowing (including finance leases and overdraft facilities) from any source, where such borrowing is to be repaid from grant monies…’

This raises a further question about whether Castle Trust sought the required permission.

We have a situation, then, where a council arranged a commercial loan for an academy trust to increase classroom capacity at one of its academies.   The extra capacity was not needed at the time and would compete with the council’s own maintained infant schools.   The expanded academy is now being rebrokered following a damning inspection.   

Once again, academization is throwing up problems which were either not foreseen or were ignored.

ADDENDUM:  See KIA for details of how in 2010 the head of Delce Academy’s predecessor school, Karen White, fought a proposal to amalgamate Delce Infant and Junior schools.    White was concerned that the 5-11 school would be too large and cause a fall in standards.  White is now CEO of Castle Trust which has done what she opposed in 2010 – open a 5-11 school – and overseen a fall in inspection ratings from good at Delce Junior to Inadequate.

UPDATE: 30 September 08.48:  The DfE has responded to my FoI about this loan.  It says Castle Trust trustees have assured ESFA they have not taken up such loans.  For details see here.   

I have changed the article in the light of this information.   The sentence 'Medway council granted a ‘commercial loan’ to the Delce Academy' has been changed to 'Medway council considered granting a ‘commercial loan’ ...' and I have added 'if the loan was arranged' to the sentence 'This raises several questions' .

 UPDATE 13 December 2019:  Medway council has responded to my FoI about this loan.   The council confirms the loan was never issued.

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