EDUCATION, ENGLAND PART 1 Preliminary Citation and commencement 1 These Regulations may be cited as the School Companies Regulations 2002 and shall come into force on 20th January 2003 . Interpretation 2 1 In these Regulations– “the 2002 Act ” means the Education Act 2002; “the 1998 Act ” means the School Standards and Framework Act 1998 ; “the constitution of a school company” means the company’s memorandum and articles of association; “executive director” means a director who provides services to the company for remuneration or other benefits whether or not under a contract of service; “a further education institution” means— an institution which has been designated by order of the Secretary of State under section 28 of the Further and Higher Education Act 1992 ; or an institution conducted by a further education corporation as defined by section 17(1) of the Further and Higher Education Act 1992; “a higher education institution” means— an institution conducted by a higher education corporation as defined by section 90(1) of the Further and Higher Education Act 1992; a university; or an institution which has been designated by order of the Secretary of State as eligible to receive funding from a higher education council under section 129 of the Education Reform Act 1988 ; “non-executive director” means a director who does not provide services to the company for remuneration or other benefits; “a relevant local education authority” means a local education authority which maintains any schools whose governing bodies are members of the school company; “a school company” means a company to which these Regulations apply in accordance with Regulation 4; “supervising authority” means the local education authority designated in accordance with Part 4 of these Regulations to supervise a school company. 2 For the purposes of these regulations a school is “subject to special measures” if– a a report of an inspection of the school has been made under either Part 1 of the School Inspections Act 1996 or section 65 or 83 of the Learning and Skills Act 2000 in which the person making it stated that in his opinion special measures were required to be taken in relation to the school; and b either that person was a member of the Inspectorate or the report stated that the Chief Inspector agreed with his opinion; and c the report has not been superseded by any subsequent report in which the person making it stated that in his view special measures were not required to be taken relation to the school. 3 For the purposes of these regulations a school “has serious weaknesses” if– a a report of an inspection of the school has been made under Part 1 of the School Inspections Act 1996 in which the person making it stated that in his opinion the school had serious weaknesses; and b that report has not been superseded by a subsequent report stating that in the opinion of the person writing the report the school either, no longer has serious weaknesses, or stating that special measures are required to be taken in relation to the school. Definition of “an agreement under the private finance initiative” 3 1 For the purposes of these Regulations “an agreement under the private finance initiative” means an agreement to which paragraph (3) or (4) of this regulation applies. 2 In this regulation– “asset” means– any tangible asset, including any land, building or equipment; or any computer software; “works” means the construction, enhancement, replacement or installation of an asset. 3 This paragraph applies to an agreement where– a consideration is received by the governing body of a maintained school under the agreement and that consideration includes– i the provision or making available of an asset or the carrying out of works for the purposes of, or in connection with, the discharge of a function of the governing body; and ii the provision of services for the purposes of, or in connection with, the discharge of the same function; b the governing body do not give to any other person any indemnity or guarantee in respect of any liabilities of the person with whom they enter into the transaction (whether those liabilities are incurred in respect of the transaction or otherwise); c the consideration given by the governing body under the transaction includes the payment of fees by instalments at annual or more frequent intervals; d the fees are determined in accordance with factors which in every case include– i standards attained in the performance of the services; or ii the extent, rate or intensity of use of the asset, or as the case may be of the asset which is constructed enhanced, replaced or installed under the transaction; and e the first instalment of fees falls to be paid after the services have started to be provided. 4 This paragraph applies to an agreement where private finance initiative credits are given to a local authority in respect of that agreement. Companies governed by these Regulations 4 These Regulations apply in relation to any company whose members include the governing body of a maintained school which has exercised its powers under section 11 of the 2002 Act to become a member of the company, except where– a the main purpose of the members in forming the company is to enter into or facilitate agreements under the private finance initiative; and b one of the company’s objects is to enter into or facilitate agreements under the private finance initiative . PART 2 Restrictions on School Companies Persons who may be admitted to membership of School Companies 5 1 The constitution of a school company must provide that the company must not admit to its membership any person who is not listed in paragraph (2) below. 2 The following persons may be members of a school company– a the governing body of a maintained school; b a local authority in England; c the proprietor of an independent school or the governing body of an independent school (if the governing body has legal personality), which provides full-time education for five or more pupils of compulsory school age; d a company which has as a significant proportion of its business the provision of education or educational or ancillary services or goods; e the governing body of a further or higher education institution (within the meaning of section 90(1) of the Further and Higher Education Act 1992) if it has legal personality; f any individual who is not excluded by Schedule 1. Restriction on entering into contracts in which a director of the company has an interest 6 1 If the constitution of a school company permits it to enter into contracts in which a director of the company has an interest, then the constitution shall provide that the company may only enter into such a contract if:– a the goods or services supplied to the company under the contract are required by the company; and b the nature and level of consideration is no more than is reasonable in relation to the value of the goods or services. 2 For the purposes of paragraph (1), a director has an interest in a contract if the following conditions are met and one of the conditions in paragraph (3) is met:– a the contract is for the supply of goods or services in return for a payment or other material benefit; and b the contract is not for the supply of services within the scope of the ordinary duties of the director. 3 The conditions in this paragraph are that:– a the director is a party to the contract; b a firm of which the director is a partner is party to the contract; or c a company or unincorporated association of which he is a member, is a party to the contract and where the company of which he is a member is limited by shares, he is a member holding more than 1% of the issued share capital of the company. Procedure in meetings of the directors if a director has an interest in a matter to be discussed 7 The constitution of a school company must provide that whenever a director has an interest, whether pecuniary or non-pecuniary, in a matter to be discussed at a meeting of the directors or a committee, the director concerned must:– a declare an interest at the time that, or before, discussion begins on the matter; b withdraw from the meeting for that item; c not be counted in the quorum for that part of the meeting; and d withdraw during the vote and have no vote on the matter. Directors of School Companies and their remuneration 8 1 The constitution of a school company must provide that at least 40% of the directors of the company at any one time shall be non-executive directors. 2 The constitution of a school company must provide that:– a there shall be a remuneration committee; b the members of the remuneration committee shall all be non-executive directors; c the remuneration committee shall recommend to the directors of the company the terms of service and remuneration of the executive directors; and d the terms of service and remuneration of the executive directors shall be determined either by the directors as a whole on the recommendation of the remuneration committee, or by the remuneration committee alone. Procedure for deciding remuneration and benefits of directors 9 The constitution of a school company must provide that no director is entitled to be present or to vote when his own remuneration or his own terms of service are being discussed. However, the constitution may allow the directors of the company to vote upon benefits, including the provision of pensions and insurance, which are provided equally for all directors or all executive directors of the company. Application of any surplus or profits of a school company 10 The constitution of a school company must provide that:– a any surplus or profits generated by the company are to be applied to further the objects of the company and shall not be distributed among the members; or b any surplus or profits generated by the company are to be distributed among the members according to proportions or procedures set out in the company’s constitution; or c any surplus or profits generated by the company may be applied to further the objects of the company or distributed among the members according to proportions or procedures set out in the company’s constitution. Permission required before a school company may borrow 11 The constitution of a school company must provide that the company shall not borrow any funds, whether secured or unsecured, without the permission of the company’s supervising authority. Restriction on school funding of school companies 12 Where a governing body of a maintained school, which is a member of a school company, is spending money as agent of its local education authority by virtue of section 49(5) of the 1998 Act, it must only make payments to that company in the following circumstances:– a as consideration for services or goods that the company has supplied or procured for the school; or b where such payment is necessary or expedient to enable the company to pursue its objects. Circumstances where a governing body must withdraw from a school company 13 If a maintained school whose governing body is a member of a school company has its delegated budget suspended under section 17 of the 1998 Act then that school’s governing body must either:– a reduce their involvement in the management of the company in accordance with regulation 32; or b resign as a member of the company. Notice required if a member wishes to leave a company 14 The constitution of a school company must provide that a member of the company may resign that membership at his own discretion but only after he has given every member of the company and the company itself 12 weeks notice of his resignation. PART 3 Seeking Consent to Become a Member of a School Company Grounds on which a local education authority may refuse permission to a school governing body to become a member of a school company 15 Where the governing body of a maintained school seek the consent of the local education authority to form or become a member of a company in exercise of their powers under section 11 of the 2002 Act, the local education authority must give that consent unless– a the school is subject to special measures; b the school has serious weaknesses; c the local education authority considers that the school is likely to become subject to special measures or be assessed as having serious weaknesses within the next year; d the school has a deficit budget; e the governing body of the school has, within the last 3 years, been a member of a school company which became insolvent at a time when the governing body was a member; or f the governing body of the school has been a member of a company which failed to act in accordance with these regulations within the last 3 years. Duty to provide written reasons for refusal 16 Where the local education authority does not consent to a governing body becoming a member of a school company, it must provide written reasons for its refusal. PART 4 The Supervising Authority for a School Company Designation of a supervising authority by a school company 17 1 Each school company must have a local education authority designated as its supervising authority. 2 Where the governing bodies of maintained schools who are members of a school company, are all from schools which are maintained by one local education authority, then, subject to paragraph (5), that local education authority is the supervising authority for that school company and the school company shall designate it as such. 3 Where the membership of a school company includes governing bodies of maintained schools maintained by more than one local education authority and there is only one relevant local education authority that is not a member of the school company then, subject to paragraph (5), that local education authority is the supervising authority for the school company and the school company shall designate it as such. 4 A school company shall designate its supervising authority in accordance with this regulation by serving written notice of the designation on the supervising authority and all relevant local education authorities within 28 days of these Regulations applying to the company. 5 Where one of the purposes of a school company is to provide services or facilities for schools and the company considers it likely that it will be competing with the local education authority who would be its supervising authority, the company may request the Secretary of State to designate a different local education authority as the company’s supervising authority. Designation of a supervising authority by the relevant local education authorities 18 1 This regulation applies to any school company where neither regulation 17(2) nor 17(3) applies. 2 Where this regulation applies the relevant local education authorities must:– a agree which of them to designate as the supervising authority within 28 days of this regulation applying to the company; or, in the absence of such agreement, b notify the Secretary of State, in writing, that they cannot agree, within 28 days of this regulation applying to the company, and request that he designate a supervising authority for the school company. Designation of a supervising authority by the Secretary of State 19 1 Where the Secretary of State designates a local education authority as the supervising authority for a company he shall serve written notice of the designation on the supervising authority, the company and all the relevant local education authorities specifying the date on which the designation takes effect. 2 The Secretary of State may, where he has designated a local education authority as the supervising authority, revoke that designation and may designate another relevant local education authority as the school company’s supervising authority. Written notice required when the Secretary of State revokes the designation of a supervising authority 20 1 The Secretary of State may revoke the designation of a supervising authority and designate a new supervising authority under regulation 19(2) by serving written notice of the revocation and designation on the school company, the supervising authority and all the relevant local education authorities. 2 Any such notice must specify the date on which the local education authority designated as the supervising authority ceases to be the supervising authority and either:– a specify the new supervising authority and the date on which it becomes the new supervising authority; or b specify the date by which the relevant local education authorities must notify the Secretary of State either– i of the authority which they have agreed to designate as the supervising authority; or ii that they cannot agree and request that he designate a supervising authority for the company. Supervising authority may resign 21 Where a local education authority has been designated as the supervising authority for a school company by agreement under regulation 18(2)(a), 20(2)(b)(i) or 23(a), that authority may, after it has been the supervising authority for two years, resign from its role as supervising authority by serving 56 days notice on the company and all the relevant local education authorities. Circumstances in which the supervising authority must resign 22 If the supervising authority of a school company is a relevant local education authority and all the governing bodies of schools maintained by the supervising authority cease to be members of the company, the supervising authority must resign from its role as supervising authority by serving 56 days notice on the company and all the relevant local education authorities. Procedure where a supervising authority resigns 23 Where a supervising authority resigns under regulation 21 or 22 the relevant local education authorities must, within 28 days of receipt of the notice, either:– a agree which authority to designate as the supervising authority; or, in the absence of such agreement, b notify the Secretary of State that they cannot agree and request that he designate a supervising authority for the school company. Notification required if a company ceases to be a school company 24 If a company ceases to be a school company it shall notify its supervising authority in writing of that fact within 7 days and specify the date on which it ceased to be a school company. The supervising authority shall notify any other relevant local education authorities and the Secretary of State that the company has ceased to be a school company within 28 days of receipt of the notice from the company. Initial functions of a supervising authority 25 When a local education authority becomes the supervising authority for a school company it must provide the Secretary of State with the following information, in writing, within 28 days of becoming the supervising authority:– a the members of the company; b the name and registered number of the company; and c the fact that it is the supervising authority for the company. Duties of a supervising authority 26 A supervising authority has a duty to:– a monitor the management and finances of the school company; and b notify members of the company and relevant local education authorities if it considers that the company is poorly managed or there is a risk of the company becoming insolvent. Duty to notify Secretary of State 27 A supervising authority must notify the Secretary of State, in writing within 28 days, of the following events:– a changes to the company’s membership, name and registered number; and b if it ceases to be a relevant local education authority. Duty of a school company to provide information and accounts to its supervising authority 28 1 A school company must, within 10 months of a governing body of a maintained school becoming a member of the company, prepare audited accounts covering the first six months of its operation as a school company and provide a copy of those audited accounts to its supervising authority. 2 A school company must provide a copy of its annual audited accounts to its supervising authority within 28 days of the audited accounts being approved or qualified by its auditors. 3 A school company must provide a copy of its constitution to its supervising authority within 28 days of that local education authority becoming the company’s supervising authority. 4 A school company must, within 28 days of any changes to its constitution being made, provide a copy of its amended constitution to the supervising authority and notify the authority of the date on which the changes took effect. Powers of a supervising authority 29 A supervising authority may exercise the following powers:– a it may direct the company to provide it with such information on the company’s constitution, finances, management and contracts to which the company is a party, as the supervising authority requests; b it may direct the company to take specified steps in order to comply with these Regulations; c it may direct the governing body of a maintained school which is a member of the company to reduce its involvement in the management of the company in accordance with regulation 32; d it may direct the governing body of a maintained school which is a member of the company to resign as a member of the company in accordance with regulation 33. Circumstances where a supervising authority must direct a governing body 30 1 A supervising authority must direct the governing body of a maintained school to either reduce its involvement in the management of the school company or resign as a member of the company in the following circumstances:– a the school is subject to special measures; b the school has serious weaknesses; c the supervising authority considers that the school is likely to become subject to special measures or be assessed as having serious weaknesses within the next year; or d the school has a deficit budget. 2 A supervising authority must direct all the governing bodies of maintained schools who are members of a school company to resign as a member of the company if it fails to comply with a direction under regulation 29(b). Procedures relating to directions from a supervising authority 31 1 Before a supervising authority may direct a governing body to either reduce its involvement in the management of a school company or resign as a member of the company, it must give the governing body and the company a warning notice stating its intention to make such a direction and its reasons for doing so. Such a warning notice must be served at least 28 days before the direction is issued. 2 The governing body or the company may make representations to the supervising authority following receipt of a warning notice, stating why they consider the intended direction to be inappropriate. Any such representations must be served on the supervising authority, in writing, within 14 days of receipt of the warning notice. Direction to a governing body to reduce its involvement in the management of a school company 32 Where a supervising authority directs a governing body to reduce its involvement in the management of the company the governing body must:– a give notice as soon as practicable to the company and to each of the company members that it has been so directed; b secure that employees of the governing body or of the local education authority who are employed to work at the school are not actively engaged in the company’s affairs within 28 days of the direction, without prejudice to any right of the governing body to be represented at meetings of the members; and c cease to make any payments to the school company unless such payments are required to settle outstanding liabilities or to pay for goods, facilities or services required by the school. Direction to a governing body to resign from a school company 33 Where a supervising authority directs a governing body to resign as a member of the company the governing body shall, within 7 days of the direction, give the company 12 weeks notice of its resignation. During that notice period it shall, as soon as practicable:– a secure that employees of the governing body or of the local education authority who are employed to work at the school, are not actively engaged in the company’s affairs, without prejudice to any right of the governing body to be represented at meetings of the members; b cease to make any payments to the school company unless such payments are required to settle outstanding liabilities or to pay for goods, facilities or services required by the school. Notification and revocation of a direction to a governing body 34 1 Where a supervising authority directs a governing body to resign as a member of the company, the supervising authority must notify the company of the direction to the governing body within 7 days of issuing the direction. 2 A supervising authority may, at any time, revoke a direction given to a governing body under regulation 29 by informing the governing body, in writing, that the direction is revoked.