Closure of the New School Butterstone: independent review report

The Deputy First Minister and Cabinet Secretary for Education and Skills commissioned this independent review, conducted by James Martin CBE, into the closure of the New School Butterstone to consider the procedures and circumstances which led to the closure.

Chapter 2: Background

2.1 This Chapter has been set out to enable those without a personal knowledge of the School to gain an understanding of its purpose and community, including information on the School finances over the period of this Review. Alongside this background information is an overview of the Relevant Bodies and their interactions with the School.

The New School Butterstone

2.2 The New School Butterstone was a small co-educational, independent secondary special school and registered charity. It was situated three miles north of Dunkeld in Perthshire and set in traditional buildings, which included residential facilities, surrounded by well cared for grounds. Although not built for purpose, the School had a peaceful rural environment, valued by those that attended and worked at the School. The School was set up by a family that retained a strong connection with the School and supported it throughout.

2.3 Students attending the School were young people, aged 11-19, who had found mainstream education difficult. Many had faced significant emotional challenges on a daily basis arising from high levels of anxiety, social difficulties and avoidance, including school refusal. Accommodation was provided for up to 39 boarders: the main school building accommodating a maximum of 27 children; the Lodge a maximum of 8 children; and Culbrae House a maximum of 4 children.

2.4 Students completed units at National 4, National 5, Higher and Advanced Higher and accreditations were achieved in Scottish Qualifications Authority (SQA) and Award Scheme Development and Accreditation Network (ASDAN) frameworks alongside London Academy of Music & Dramatic Art (LAMDA) and the Duke of Edinburgh award scheme.

2.5 At the time of its closure, the School had 24 pupils and 51 staff. The majority of pupils had been placed at the School through a referral from their local authority, in the main after a long tribunal process. This tribunal process was officially known as the Additional Support Needs Jurisdiction of the Health and Education Chamber of the First Tier Tribunal for Scotland, generally referred to as the Additional Support Needs Tribunal for Scotland (ASNTS). After January 2018 it was incorporated into the First Tier Tribunal. The legislation relating to this is the Education (Additional Support for Learning) (Scotland) Act 2004. The local authority with the most pupils placed at the School was Perth and Kinross Council, with a further 6 local authorities connected to the School in this way during the period under review. Some parents chose to privately support their children to attend the School.

2.6 The School had the following aims:

  • To sustain a calm, caring and purposeful learning community with a strong focus on mutual respect and teamwork across the whole School;
  • Deconstruct barriers to enable young people's optimal inclusion, learning and development;
  • Support young people to build lasting friendships, increase self-confidence and resilience;
  • Deliver a broad relevant, challenging and coherent curriculum that is tailored to meet individual students' needs and aspirations;
  • Be skilled in delivering appropriate learning experiences to ensure all students realise their academic potential;
  • Promote equalities throughout the school in order for all young people to be able to express their individuality, and be supported to maximise life chances;
  • Be a school with expertise in supporting children and young people with Autism Spectrum Conditions;
  • Ensure participation and inclusion across the whole school.

2.7 The School was incorporated as a private limited company in 1990, established in 1992 and closed on 23rd November 2018. The Board of Governors made a statement at this time that the School was no longer financially viable.


2.8 During the period covered by this Review, the finances of the School were a matter of constant concern to the Board. Having in previous years built up substantial reserves, the Board determined to utilise these whilst searching for a longer-term sustainable future for the School. In each of 2016, 2017 and 2018 there were discussions with the School's auditors as to whether the School could be described properly as a 'going concern'. Both the Board, and the auditors, eventually concluded that it was. However, the School was operating at a considerable loss. It was clear to the Board, even before the period this Review considered, that unless there was a significant improvement in the finances of the School, or it could be merged with another school or taken over by another body, it was likely that the School would have to close.

2.9 Costs were increasing and income from fees could not keep pace. The School's accounts for the year ending 31 August 2017 show a 12% increase in the costs of running the School, an increase of £207,784, compared to an increase in fee income of only £89,554. The School's income was dependent on fees, yet the School roll, and the level of additional fees paid for individual pupils, fluctuated over time. For example at the beginning of 2016/17 the School roll was 28 pupils, compared to 21 pupils in 2017/18, a fall of 25%, though some of the pupils were funded at a significantly higher level because of their particular needs.

2.10 Most pupils were placed at the School, and their fees paid, by local authorities, with a small number of pupils being placed at the School directly by their parents who met their children's fees privately. At the time of the School's closure, pupils from seven local authorities attended the School. A significant number of local authority placements were originally opposed by placing authorities and, in many cases, parents had taken refusal of placing requests to the First-tier Tribunal for Scotland (Health and Education Chamber). For example, at the time of the School's closure, Perth and Kinross Council had the largest number of local authority pupils placed at the School. Yet only a small minority of Perth and Kinross pupils had been placed at the School proactively by the Council. Most placements of Perth and Kinross pupils were opposed by the Council, leading to delays in placements.

2.11 This process could be lengthy and unpredictable in terms of timings and outcome, exposing the School to a risk of delays in placements being made and uncertain and fluctuating school roll numbers. In turn, this impacted on the ability of the School to attract pupils, plan for converting parental interest into placements of pupils at the School, and therefore the Board's financial planning. This pupil placement uncertainty also impacted on the relationship between Perth and Kinross Council and the School, which was to have a bearing on events in the last year of the School's existence.

2.12 It is essential that a small School of this type, operating of necessity with a small roll, a high staff /student ratio and a significant residential component, would need to put in place careful financial planning and risk assessments.

2.13 Minutes of Board meetings in 2017 record the Board's concerns about projected budget deficits over the next two financial years and that, properly, the Board kept under review the question of whether the tests were met to allow the School to continue as a going concern. As set out above in 2.8, as early as February 2017 the Board minute records that the Trustee's Auditors were aware of the financial projections received by the Board predicting deficits in the next two trading years, but were content that the School continue operating as a going concern, 'on the basis that a strategy was being considered'.

2.14 The Board's strategy included broadening the ability of the School to take adult residents, improving fundraising, exploring ways to market the School to councils and councillors, and considering opportunities to increase the School roll. In addition, an external agency was engaged to assist the Board in planning its fundraising strategy.

2.15 However, over the course of 2017, the financial position of the School continued to deteriorate. In May 2017, the Board asked all non-residential staff to take a 10% cut in hours, given the reduction in pupil numbers. By September 2017 the Board minutes show projected losses for the next financial year. On the basis that the School roll remained at its level at that time, the projected outturn was a deficit of £337K, with a possible uplift in pupil numbers projected to reduce the operating deficit to around £200K. While the Board at that meeting kept the position of the School as a going concern under review, they also asked for further work to be done on costing the closure of the School including calculating possible redundancy, notice and lease costs.

2.16 Clearly the financial position was very serious and the Board responded by revising their approach. By early December 2017 the Board had produced a new strategy and shortly thereafter commissioned an independent review of the service and market conditions. The resulting development plan was approved, setting out steps which required to be taken to widen the service and increase investment in the School. The Board told me when I first met with them that a plan was also discussed to increase the pupil base, as the Board were aware that 10 pupils out of 24 were due to complete their placement at the end of the academic year 2017/18.

2.17 Part of the new strategy was the creation of the role of Head of Development. An individual was appointed to this role and their task was to help boost pupil numbers at the School. This new Head of Development was many years previously employed by the School as Headmaster and had, more recently through their own business, worked with parents helping guide them through the local authority placement process. The Head of Development moved into this post having already had contact with a number of parents who wished to move their children out of mainstream provision into the School.

2.18 While some progress was made in attracting parents to ask for their children to be placed at the School, the financial position continued to give cause for concern. Fundraising initiatives brought disappointing returns. In March 2018, the Board decided, at relatively short notice, to increase fees substantially. Coming late in their financial budgeting process, the short notice of this decision and lack of discussion with stakeholders regarding this large increase in fees drew strong criticism from placing authorities, particularly Perth and Kinross Council.

2.19 In March 2018, the Head of School at this time (henceforth referred to as Head of School 'A') retired and was succeeded by the new Head of Development referred to at 2.17 above (henceforth either referred to as the Head of Development while they were in this role, or as the Head of School 'B' once this position was taken up).

2.20 By May 2018 it was clear to the Board that unless there was a significant external intervention, either through a considerable injection of funds, or a takeover of the School by another body, the School was unlikely to be in a financial position to continue as a going concern beyond the summer term. The Board advised the Office of the Scottish Charity Regulator (OSCR) of this, making a voluntary disclosure of a Notifiable Event on 6 June 2018. OSCR responded indicating that they considered that the Board were taking the correct steps at the appropriate times. At this point, the School approached the Witherslack Group (Witherslack) and invited it to consider purchasing the School. Witherslack operated 20 similar establishments in other parts of the United Kingdom and was already looking to expand its business into Scotland. Its initial response to the approach was positive. The interest of Witherslack allowed the Board the potential to continue to trade as a going concern and to plan beyond the summer term, although matters were coming to a head.

2.21 Discussions between the School and Witherslack were held through June 2018, but gathered pace in late July when the new Head of School B informed Witherslack that the position was now 'fraught'. In an email to Witherslack, Head of School B advised that, "Given the current cash flow situation, I think we may have to issue notice of closure within the next few days and this will then undermine the current and future revenue stream and also generate publicity that we may struggle to manage."

2.22 Witherslack responded quickly and began a speedy due diligence process including meeting the Board, assessing premises and a high level review of pupil files. Those that I interviewed from Witherslack have told me that the Trustees were open with them about the predicament of the School and that without Witherslack's intervention they would not be able to continue as a going concern.

2.23 An agreement to purchase the School was made in late August 2018, contingent upon a number of factors. These included Witherslack being able to gain the necessary approval to run schools in Scotland from both the Scottish Ministers (in respect of the school) and the Care Inspectorate (in respect of the residential aspect). A management agreement was also put in place whereby Witherslack agreed to administer the School on the Board's behalf, although nothing in the agreement derogated from the authority and responsibilities of the Board in operating the School. With Witherslack underpinning the finances of the School in the short term and a long term agreement, all being well, to formally purchase the School by the end of 2018, the Board were able to continue operating the School.

2.24 On 6 November 2018, after events which are described in the body of this report, Witherslack informed the Board that it no longer wished to proceed with the purchase of the School, but would honour its agreements to the School until 24 December 2018. As it turned out, again for reasons explored elsewhere in this report, the date of Witherslack's withdrawal was brought forward to 23 November 2018.

2.25 The Board were wholly dependent on the financial and management support of Witherslack by 6 November 2018, when a decision to suspend the Head of School B had been taken. The withdrawal of Witherslack from the agreements meant that the Board were not in a position to trade without Witherslack's financial support which ended on 24 December 2018. I was told by the Board that they had considered other options, but that no third party other than Witherslack was likely to consider taking over the School under the requirements of the Transfer of Undertakings (Protection of Employment) regulations (TUPE). The Moore House Group, who had previously been spoken to by the Chair of the Board, would not proceed under TUPE provisions.

2.26 The School, which had been in a difficult financial position for some time as described above, closed because in the view of the Board the Charitable Trust should be wound up. The manner of the School's closing, the failure of the Witherslack agreement and the decisions of the Board, are set out in detail in Chapters 3, 4 and 5, including the considerable human impact. At its closure the School was placed into administration. Not all payments due to staff were met.

The roles of the Relevant Bodies

2.27 As set out earlier, the Relevant Bodies in this Review are the Board of the School, the Care Inspectorate, HM Inspectors, the Registrar of Independent Schools, all relevant local authorities and the Scottish Government. A summary of the roles of each of the Relevant Bodies can be found at Annex B and on their own dedicated webpages.

2.28 The School was registered with the Care Inspectorate and the Registrar of Independent Schools. The Care Inspectorate (for the School care accommodation service only) and HM Inspectors (for the School) inspected the School and provided their evaluation of the quality of provision. The Scottish Government and Scottish Ministers are responsible for overseeing the work of HM Inspectors and the Registrar of Independent Schools, and the Scottish Ministers have the power to require inspections and impose conditions.

2.29 All independent schools are autonomous. They are overseen by a proprietor, usually a board of governors, and many proprietors also act as trustees of a registered charity. Governors are responsible for the School's education activities and operations. The Head of School, teachers and support staff are employed by the Governors of these Schools, as the managing authority or proprietor of the school. All legal and regulatory duties are ultimately the responsibility of the proprietor (in this case, the board of Governors at the School). Notwithstanding, Governors are volunteers and are required to act independently in the best interests of the School.

2.30 The Board of the New School Butterstone followed this traditional approach and had no unusual aspects to its set up. Much of the implementation of the Board's policies at the School was overseen on behalf of the Board by two committees: the Business Committee and the Education and Care Committee. The composition of these committees pays due regard to their respective remits, requiring relevant qualification and experience: business and legal disciplines for the Business Committee and education and care backgrounds for the Education and Care Committee.

2.31 All Councils are the Education Authority for their own local government area. As Education Authority, the Council has a range of powers and duties in relation to pupils in its area which are relevant for the purposes of this Review.



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