Williams Business College Ltd and and Tertiary Education Quality and Standards Agency
[2014] AATA 371
•12 June 2014
[2014] AATA 371
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2013/1850
Re
Williams Business College Ltd
APPLICANT
And
Minister for Education
RESPONDENT
File Number(s)
2013/5510
Re
Williams Business College Ltd
APPLICANT
And
Tertiary Education Quality and Standards Agency
RESPONDENT
Decision
Tribunal Senior Member A K Britton
Date 12 June 2014 Place Sydney 1. The decision under review to impose a condition on the registration of the College for the Bachelor of Business degree, that the College not issue any new Confirmations of Enrolment, is affirmed (Decision 1: 2013/1850).
2. The decision under review to reject the College’s application for renewal of registration, under the Tertiary Education Quality and Standards Agency Act 2011 (Cth) is affirmed (Decision 2: 2013/5510).
3. Pursuant to s 43(5B) of the Administrative Appeals Tribunal Act 1975 (Cth) Decision 2 will come into operation at a date to be determined.
The Tribunal directs:
1.If the parties reach agreement they must notify the Tribunal by midday 16 June 2014 of the date they consider appropriate for Decision 2 to come into effect.
2.If agreement is not reached the parties are invited to advise the Tribunal by 5 pm 17 June 2014 of the date they consider appropriate for Decision 2 to come into effect and provide brief written submissions in support.
...................[SGD].....................................................
Senior Member A K Britton
Catchwords
EDUCATION — Education providers —Registration of college as Higher Education Provider — Conditions imposed upon registration — Whether Education Provider continues to meets the Threshold Standards — Date of effect of decision
Legislation
Administrative Appeals Tribunal Act 1975 (Cth) – ss 43(5A); 43(5B)
Education Standards for Overseas Students Act 2000 (Cth) – ss 28; 29; 83(1); 83(3)(a)
Higher Education Threshold Standards Framework (Threshold Standards) 2011
National Code of Practice for Registration Authorities and Providers of Education and Training to Overseas Students 2007Tertiary Education Quality and Standards Agency Act 2011 (Cth) – ss 3;13; 14; 15; 16; 19; 32; 36; 58; 134
Cases
Shi v Migration Agents Registration Authority (2008) 235 CLR 28
REASONS FOR DECISION
Senior Member A K Britton
12 June 2014
Williams Business College Ltd (the College) is a “higher education provider” registered under the Tertiary Education Quality and Standards Agency Act 2011 (Cth) (TEQSA Act). Since 2012 the College has been accredited to offer a Bachelor of Business degree. As a consequence of its registration with the Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS), the College is permitted to offer its business degree to overseas students. Two hundred and twenty students are currently enrolled with the College. All but a few are overseas students.
The College seeks review by the Administrative Appeals Tribunal (the AAT) of two decisions:
Decision 1: to impose a condition on the registration of the College for the Bachelor of Business degree, that the College not issue any new Confirmations of Enrolment (the condition decision).
Decision 2: to reject the College’s application for renewal of registration, under the TEQSA Act with effect from 31 December 2013 (the registration renewal decision).
The stated reason for Decision 1 was the College’s failure to comply with a condition imposed on 20 February 2013 by TEQSA, acting as delegate for the Minister for Education under the Education Standards for Overseas Students Act 2000 (Cth) (the ESOS Act). That decision was made following the discovery by TEQSA officers that the College was in breach of the ESOS Act, which required the College to hold tuition fees received from overseas students in a designated trust account until the relevant student commences their course of study.
The stated reason for Decision 2 made eight months later was the College’s alleged failure to meet the Higher Education Threshold Standards Framework (Threshold Standards) 2011 (Threshold Standards) in the areas of governance, management and compliance with regulatory requirements. In its reason for decision, TEQSA stated that for the most part the College only moved to address non-compliance following intervention by TEQSA and, despite numerous steps taken by TEQSA to assist the College address its concerns, non-compliance continued.
At the application of the College, the Tribunal made orders staying the operation of both decisions.
The College concedes that in its early days it faced significant problems, in part because of personnel problems and debts inherited from the College’s now disbanded vocational, education and training (VET) program. The College contends that the shortcomings identified by TEQSA have progressively been addressed under the able leadership of the Chair of the Governing Council of the College, Professor Robin Woellner (appointed in May 2013) and the Dean of the College, Professor Halim Henrik (appointed in April 2013). The College asserts that despite its acknowledged shortcomings, it has delivered quality education to students throughout its two years of operation. The College contends that it now satisfies all Threshold Standards and relevant statutory requirements and urges the Tribunal to set aside the decisions under review. The College states that it is willing to submit to any conditions considered appropriate by the Tribunal, including a reduced period of registration.
The Minister and TEQSA, the respondents in these proceedings, contend that the decisions under review should be affirmed. They concede that while there is evidence of improvement, on the available evidence the Tribunal could not be satisfied that the College meets the Threshold Standards. For convenience, I will refer to the respondents collectively as “TEQSA” or “the Agency”.
Self-evidently the registration decision is the more significant of the two decisions under review. The parties agree that four primary issues arise for determination in these proceedings:
(i)The financial viability of the College
(ii)The satisfactory oversight of the financial viability of the College by the Higher Education Governing Council (the Council)
(iii)The satisfactory management by the Council of risks to the higher education function of the College
(iv)The adequacy of the College’s governance and quality assurance mechanisms.
Regulatory framework
The stated objects of the TEQSA Act (s 3) are:
(a)to provide for national consistency in the regulation of higher education; and
(b)to regulate higher education using:
(i) a standards-based quality framework; and
(ii) principles relating to regulatory necessity, risk and proportionality; and
(c)to protect and enhance:
(i) Australia's reputation for quality higher education and training services; and
(ii) Australia's international competitiveness in the higher education sector; and
(iii) excellence, diversity and innovation in higher education in Australia; and
(d)to encourage and promote a higher education system that is appropriate to meet Australia's social and economic needs for a highly educated and skilled population; and
(e)to protect students undertaking, or proposing to undertake, higher education in Australia by requiring the provision of quality higher education; and
(f)to ensure students undertaking, or proposing to undertake, higher education, have access to information relating to higher education in Australia.
TEQSA’s functions include the registration of higher education providers, the accreditation of higher education courses of study, and the investigation of compliance with the TEQSA Act (s 134 of the TEQSA Act).
When exercising a power under the TEQSA Act, TEQSA must comply with the “basic principles for regulation”, namely (s 13):
(a)the principle of regulatory necessity;
(b)the principle of reflecting risk;
(c)the principle of proportionate regulation.
The Act provides guidance on the application of those principles (ss 14 - 16):
14 Principle of regulatory necessity
TEQSA complies with the principle of regulatory necessity if its exercise of the power does not burden the entity any more than is reasonably necessary.
15 Principle of reflecting risk
TEQSA complies with the principle of reflecting risk if its exercise of the power has regard to:
(a)the entity’s history, including the history of:
(i) its scholarship, teaching and research; and
(ii) its students' experiences; and
(iii) its financial status and capacity; and
(iv) its compliance with the Threshold Standards, this Act, this Act’s associated provisions and other laws regulating higher education; and
(b)matters relating to the risk of the entity not complying with the Threshold Standards, this Act or this Act's associated provisions in the future, including:
(i) its internal quality assurance mechanisms; and
(ii) its financial status and capacity.
16 Principle of proportionate regulation
TEQSA complies with the principle of proportionate regulation if its exercise of the power is in proportion to:
(a)any non-compliance; or
(b)risk of future non-compliance;
by the entity with the Threshold Standards, this Act or this Act’s associated provisions.
Section 36 of the TEQSA Act provides:
Deciding whether to grant the application
1Upon receiving a registered higher education provider's application for renewal of registration, TEQSA may renew the provider's registration if it is satisfied that the provider continues to meet the Threshold Standards.
2The things TEQSA may do to assist it to make a decision under subsection (1) include:
(a)requesting information, documents or assistance from the provider; and
(b)conducting a compliance assessment.
3The provider’s registration is taken to continue until TEQSA decides whether to renew the provider’s registration.
4If TEQSA renews the provider’s registration, TEQSA must determine the period for which the provider’s registration is renewed. The period must not exceed 7 years.
Note: Any conditions imposed on the registration, and in force immediately before its renewal, will apply to the renewed registration.
The Threshold Standards is a legislative instrument made under s 58 of the TEQSA Act. Together with the Research Standards (made under s 58(2)) it comprises the Higher Education Standards Framework. The Threshold Standards include, amongst other things, the Provider Registration Standards (PRS).
The Explanatory Statement to the Threshold Standards states (at p 2):
Purpose and Operation
The purpose of the legislative instrument is to make the Threshold Standards. The Threshold Standards which comprise a core component of the Higher Education Standards Framework are integral to the regulatory framework in which TEQSA will operate. The Threshold Standards are crucial to ensuring that the entry gateway to the higher education sector is sufficiently high and provides a solid basis of performance from which all providers can build excellence and diversity. A brief explanation of the Provider Standards and the Qualification Standards are provided below.
The Provider Standards
The Provider Registration Standards, the Provider Category Standards and the Provider Course Accreditation Standards set out the requirements for higher education providers to be registered and for their courses to be accredited, and to determine whether a provider meets the requirements for a given category of higher education institution. TEQSA will register and evaluate the performance of higher education providers against the Higher Education Standards Framework (Standards Framework) which will comprise five domains: Provider Standards (consisting of the Provider Registration Standards, Provider Category Standards and Provider Course Accreditation Standards); Qualification Standards; Teaching and Learning Standards; Research Standards and Information Standards. The Provider Standards and Qualification Standards together constitute the Threshold Standards. All higher education providers must meet the Threshold Standards in order to be registered and maintain operation as a higher education provider within Australia.
The development of the Standards Framework will be central to ensuring the quality of the sector. It will incorporate national quality standards and benchmarks, to ensure that the bar for entry to the sector is sufficiently high and provides a basis from which all providers can build and diversify.
The introduction of a higher education standards-based quality regulatory framework under TEQSA will ensure that all higher education providers meet or exceed the Threshold Standards under the Standards Framework. The Threshold Standards will consist of legislative instruments and will be enforceable to enable TEQSA to take action in response to identified poor performance and to ensure that strong market entry thresholds are maintained.
The Threshold Standards will underpin TEQSA’s regulatory activities and provide appropriate safeguards to ensure students receive a quality education. This will be central to ensuring that the bar for entry to the sector is sufficiently high and will set out the expectations that students, the Government and taxpayers have of our providers.
The ESOS Act regulates the provision of education to overseas students. Part 6 of the ESOS Act allows the Minister to impose sanctions on “registered providers” for non-compliance with the National Code of Practice for Registration Authorities and Providers of Education and Training to Overseas Students 2007 (National Code). Where the Minister believes on reasonable grounds that the registered provider is breaching, or has breached, the Act, the National Code, or, a condition of the provider’s registration, the Minister may impose condition(s) on, or suspend or cancel, the registered provider’s registration (ss 83(1) and 83(3)(a) of the ESOS Act).
Certain classes of decisions made by TEQSA are reviewable by the AAT and include those the subject of these proceedings, namely, a decision to impose a condition on a higher education provider’s registration (s 32), and, to refuse to renew the registration of a higher education provider (s 36).
Background to decisions under review
Prior to TEQSA assuming responsibility for higher education regulation in January 2012, the regulation of higher education in NSW was undertaken by the NSW Department of Education and Training (NSW DET). The College withdrew the first of two applications for registration made to NSW DET after being advised that its proposed Bachelor of Business course did not meet the requirements for accreditation. Its second application was successful and in December 2011, NSW DET approved, subject to conditions, the registration of the College as a higher education provider for an initial period of one year.
Since 29 January 2012, the College has been registered with TEQSA under the transitional provisions to the TEQSA Act, and accredited to offer a Bachelor of Business course.
In late December 2012 the (then) Dean and Chairs of the Council and Academic Board met with officers of TEQSA and outlined their concerns about the College’s financial management, financial sustainability and corporate governance. Following that meeting, the Chief Commissioner of TEQSA wrote to the College raising “potential issues relating to the College’s capacity to meet standards of quality in the delivery of higher education”, detailing alleged breaches of the Threshold Standards, including those relating to financial governance.
In February 2013, TEQSA imposed a condition on the registration of the College, which required the College to provide monthly reports on “pre-paid fees” — fees paid by overseas students and received by the College before the commencement of the student’s course of study. The trigger for that decision (the pre-paid fee condition) was the discovery by TEQSA officers that the College might not have been in a position to refund pre-paid fees. The ESOS Act requires education providers to maintain a designated account for pre-paid fees (s 28). Providers must ensure at all times that that account holds a sufficient amount (the protected amount) to enable it to repay all pre-paid fees (s 29 of the ESOS Act).
The pre-paid fee condition remains in place and is not the subject of review.
Reviewable decision 1: the condition decision
On 27 March 2013, TEQSA acting as delegate of the Minister made the first of the two decisions the subject of these proceedings. In a detailed statement of reasons TEQSA set out its findings that the College had:
Not fully complied with the pre-paid fee condition and remained in breach of s 29 of the ESOS Act.
Failed to comply with standard 1 of the National Code, which requires providers “to ensure the marketing of its education and training services is undertaken in a professional manner and maintains the integrity and reputation of the industry”. TEQSA found that despite being notified in December 2012 of “material breaches” of the Code, , the College continued to provide “misleading information” to students and prospective students.
In breach of s 21A of the ESOS Act, failed to maintain and publish on its website a current list of its agents.
TEQSA also raised concerns about the hiatus created by the mass resignation of College staff and members of the Academic and Council boards.
Reviewable decision 2: The refusal to renew registration decision
On 1 October 2013 TEQSA decided to reject the College’s application for renewal of registration, with effect from 31 December 2013. In a 43-page statement of reasons, TEQSA detailed its concerns about numerous aspects of the College’s operations. TEQSA found the College had not met the Threshold Standards in the following areas:
Governance of WBC’s higher education operations (Standards 3.1, 3.4 and 3.7)
Management of WBC’s higher education operations (Standards 2.3, 2.4, 5.1, 5.4, 5.5, 6.1, 6.2, 6.3, 7.1 and 7.4); and
History of WBC’s compliance with regulatory requirements and other legislation ([Threshold] Standards 1.3, 1.4, 1.5, 1.6, 2.3, 2.4, 5.2 and Provider Category Standards 1.1 and 1.4).
TEQSA found that the current position of the College coupled with its significant history of non-compliance in the area of its educational operations demonstrates a fundamental and ongoing failure to comply with its provider obligations and places current and future students at risk. TEQSA concluded that the College lacked either the capacity or capability to identify and address shortcomings in the areas of internal quality assurance and regulatory compliance and concluded that “more serious regulatory action is now appropriate”.
Structure of the College
The College is a company limited by guarantee. Mr Amarjit (Ambi) Singh Thind and Ms Neda Morris are the shareholders and directors of the College. While conceding that this was not always the case, the College asserts that neither the Board of Directors, nor any individual director, has any current involvement with the day-to-day management of the College.
In May 2013 the Board of Directors and the Council approved the Higher Education Governance Charter (the Charter). The Charter sets out the relationship between the Board of Directors, the Council, the Academic Board and other bodies, which is represented in diagrammatic form below:
The Charter states that the functions of the Council include:
Exercising overall responsibility for the pursuit of the mission and goals of the higher education institution
Approving and monitoring the implementation of the College’s strategic academic direction, business plan, risk management and annual budget in relation to its higher education operations.
Establishing an Academic Board and appointing the Chair to oversee the academic governance of the higher education institution, determining membership and monitoring its activities
Awarding qualifications on recommendation of the Academic Board
Approving operational policies and procedures for higher education operations consistent with legal requirements and corporate social responsibility
Overseeing and reviewing the performance of the higher education institution.
Following the resignation of Mr Thind as CEO of the College on 8 October 2013, the Board of Directors resolved to delegate responsibility “in terms of Provider Registration Standard 3.1 for oversight of the entirety of the Higher Education Program of Williams Business College Ltd to the Council”. Provider Registration Standard 3.1 requires the provider to have a corporate governing body with responsibility for oversight of all its higher education operations, including conferral of its higher education awards, and to which management is accountable.
The Charter provides that the Council consists of a maximum of seven members, including one “non-executive member” — a member who has an interest in the ownership of the College but does not hold an executive position; executive members —members who holds an executive position within the College; and independent members — members who neither hold an executive position within the College nor an interest in the ownership of the College.
The current members of the Council are: the Chair, Prof Woellner, the Dean, Prof Hendrik, Dr Mahaswaran Sridaran and Associate Professor Lance Fung (chair of the Academic Board). Dr Lim was a member until her resignation, which took effect in May 2014. While a formal appointment is yet to be made, the Chair has had discussions with an academic he believes would be suitable to replace Dr Lim. Mr Thind resigned from the Council on the eve of the hearing in these proceedings.
The Charter provides that the conduct of the Council’s business is delegated to the Higher Education Executive Management Team (Executive Management Team). The Charter describes the Executive Management Team as the “primary operational decision-making body of the College” and consists of the Dean, the course coordinator, the marketing director and the admissions manager. The Charter states that academic governance is overseen by an Academic Board. Currently chaired by Assoc. Prof Fung, the members of the Board are Assoc. Prof Vincent Lee, Ms Christine Van Toorn, Mr Alaa El Hammad and the Dean.
Under the Charter the chairs of the Council and all members of the Academic Board are appointed by the Board of Directors. The Board of Directors must seek the advice of the Chair of the Council when appointing the Chair of the Academic Board.
New Dean takes over as CEO from Mr Thind
The Dean discovered on taking up his appointment in April 2013 that the College operated in a “disorganised and haphazard manner.” The former Dean and all members of the Academic Board resigned in early 2013, apparently following a dispute with Mr Thind. . The Chair and most members of the Governing College also resigned around this time.
When the Dean took up his appointment, Mr Thind was acting in the role of managing director/chief executive officer of the College. According to the Dean he understood when appointed that his role would be to provide academic leadership and manage the College’s academic operations. He soon found he was also expected to take on responsibility for, among other things, compliance with the College’s obligations as a higher education provider, marketing and other operational matters. The Dean progressively took over responsibility for additional areas and by October 2013, was responsible for the financial management of the College. A week after TEQSA’s decision to refuse to renew the College’s registration, Mr Thind tendered his resignation as CEO of the College, apparently at the urging of the Chair. In its reasons for decision, TEQSA was extremely critical of the role played by Mr Thind and concluded that he “continued to be primarily responsible for decision-making in the College” and that the Council “does not have adequate oversight of its higher education operations”. The Dean claims he now reports directly to the Council not Mr Thind.
The campus lock-out
On 1 August 2013, the Dean arrived at work to discover that security guards acting on direction from the College’s landlord, North Sydney Council, had refused staff and students access to the College’s campus. On contacting North Sydney Council, the Dean discovered that the College owed $150,000 in rental arrears. Later that day the Dean persuaded North Sydney Council to permit students and staff to re-enter the campus. Over the ensuing months he negotiated an arrangement to pay rental arrears and enter into a new lease agreement. That agreement has now been signed by the College. The Dean is confident that North Sydney Council will sign off on that agreement in the near future.
The Dean and Chair claim that neither they, nor to their knowledge, other members of the Council, apart from Mr Thind and possibly Dr Sridaran, were aware that rent had been outstanding for a significant period prior to 1 August 2013. Both claim that despite questioning Mr Thind they have not received a satisfactory explanation for his decision not to pay rent. Apparently Mr Thind was of the opinion that the rent was too expensive and made a “strategic decision” to “force the lessor to prematurely terminate the lease” by not paying rent. TEQSA recorded Mr Thind as saying in answer to a question about why he failed to bring to the attention of the Council the significant rental arrears, “You never know who they might talk to” (TEQSA, Statement of reasons, 1 October 2013, par [58]).
Discovery of Australian Taxation Office debts
The Dean testified that in mid-January 2014, he was contacted by Council member, Dr Sridaran, and told that he had finalised a payment arrangement with the Australian Taxation Office (ATO) for superannuation arrears in the sum of $290,000. According to the Dean this was the first occasion he learnt of that debt. (It may be that the Dean is mistaken. The minutes of the meeting of a Council sub-committee held on 5 December 2013 record Dr Sridaran reporting that an ATO notice had been received claiming arrears of $266,000. The sub-committee consisting of the Dean, the Chair, Mr Thind and Dr Sridaran was established in December 2013 to deal with pressing issues over the New Year period.) The Dean claimed that after speaking with the Chair who told him he was also unaware of the ATO liability, he told Mr Thind that the “Higher Education [arm of the College] cannot afford to make these repayments. According to the Dean, Mr Thind initially assured him that he would find the money but a month later it became apparent to him that that assurance would not be realised. At that point the Dean concluded that absent a cash injection, the College would be unable to meet the repayment plan negotiated by Dr Sridaran.
On 20 February 2014, after conferring with the Chair, the Dean contacted the ATO to negotiate a revised repayment plan. He learnt from the ATO that in addition to the $290,000, the College owed a further $130,000 in respect of PAYG arrears.
The following day the Dean advised TEQSA of the existence of the ATO debts totalling $420,000. A registered higher education provider must notify TEQSA within 14 days of becoming aware of “material changes”, which include an event that will significantly affect the provider’s ability to meet the Threshold Standards (s 19 of the TEQSA Act).
Current liabilities
According to the Dean and Chair shortly before the commencement of this hearing, Mr Thind agreed to a document — “Statement of Liabilities – Williams Business College Ltd” (the Liabilities Statement) — which purportedly sets out all debts owed by the College known to Mr Thind. The Dean and the Chair testified that frustrated with the inadequate information they and other members of the Council had been given about the College’s liabilities, the Chair approached Mr Thind and demanded that he provide details of all debts owed by the College. According to the Dean he prepared the first draft of the Liabilities Statement and the final version was the result of negotiation between Mr Thind, the Chair and himself. According to the Chair, the Liabilities Statement has been provided to all members of Council but was yet to be the subject of a formal determination by Council.
The College provided a copy of the Liabilities Statement at the request of the Tribunal (Exhibit A 8). It lists debts totalling about $530,000 categorised as follows:
Category 1: Debts owed solely by Higher Education Division of William Business College Ltd (WBC)
Category 2: Debts owed solely by WBC Ltd (part of the debt is HE related, others VET)
Category 3: Debts owed solely by VET Division of William Business College Ltd.
The Liabilities Statement records that the:
Category 1 debt of $24,000 is scheduled for repayment after the July 2014 intake of students and/or when cash flow improves
Category 2 debt of $455,000, [most of which is owed to the ATO] will be repaid by instalments over the next 18 months
Category 3 debts of $49,000 are being, or will be, paid by the directors.
According to the Chair, Mr Thind sought to include in the Liabilities Statement, an amount of about $180,000 for services he and Dr Sridaran had provided to the “higher education arm” of the College. According to the Chair, Mr Thind acquiesced to his demand to withdraw that claim.
The Dean testified that he is confident that the Liabilities Statement represents the full extent of the College’s liabilities. He said he was satisfied with the assurance given by Mr Thind because the Liabilities Statement was given not just to him but to all members of the Council. The Chair is also confident that all known liabilities have been disclosed in the Statement. He understands the Statement to constitute an undertaking given by Mr Thind to the Council and is in effect, a “gentleman’s agreement”.
Loans to the College
Not recorded in the Liabilities Statements are various loans apparently made to the College by various companies associated with Mr Thind. While the Chair and Dean have different understandings of the details of these loans each testified that they understand that the College is not currently required to repay those loans.
The Dean testified that Mr Thind sought to include in an earlier version of the Liabilities Statement, an amount of about $200,000 in respect of these loans. According to the Dean, the reference to the loan was removed after Mr Thind verbally agreed to his request to forgive the loans.
According to the Chair, it is his understanding that the total value of the loans, which he characterised as a “contingent liability”, is just under $0.5M. He testified that it was his understanding that the loans are only repayable if, or when, the College’s finances improve.
In a letter dated 29 January 2013, in answer to a request for information by TEQSA, Mr Thind wrote that companies he was associated with had lent money to the College, and would not seek repayment until the College was in a position to do so.
Mr Thind provided copies of undated loan deeds between the College and Waterfall Investment Pty Ltd, Education Group and Mercury College (associated companies) in a letter to TEQSA dated 21 June 2013. Each deed was executed by Mr Thind and Ms Morris in their respective capacity as directors of the College (the borrower) and each of the associated companies. Each deed is in identical terms and states that the College is not obliged to make any repayments before 1 July 2015.
In the course of conducting its compliance audit TEQSA raised concerns about the loan agreements between the College and companies associated with Mr Thind. In its reason for decision TEQSA wrote:
WBC also states that “The intangible assets of $374,991 shown in the College’s balance sheet as at 31 December 2011 (representing all the preliminary “start-up” costs incurred up to the point of the College gaining the capacity to deliver higher education courses) will be borne by The Education Group Pty Ltd. Accordingly, that intangible asset of $374,991 will convert to a tangible asset, being a debt of $374,991 owed by The Education Group Pty Ltd to the College. The Education Group Pty Ltd will discharge that debt of $374,991 as and when cash is required by the College.”
WBC has entered into formal agreements with Waterfall Investments Pty Ltd, The Education Group Pty Ltd and Mercury Colleges Pty Ltd respectively, confirming that the three latter companies will not seek payment of the debts owed to them by the college until at least 1 July 2015 have been supplied to TEQSA.
…
The formal agreements each entered into between WBC and Waterfall Investments Pty Ltd, The Education Group Pty Ltd and Mercury Colleges Pty Ltd respectively, following the issuance of the summary of findings are considered a form of financial safeguard.
The minutes of the meeting of the Council of 11 November 2013, record that following a request from a company, which had lent money to the College, the College repaid $7000. The minutes record the Chair raising his concern that this decision was made while he was overseas and without his knowledge.
Financial statements
The audited financial statements of the College for the year ending December 2012, record (figures rounded):
Total liabilities
$ 753,000
Total assets
$ 760,000
Net assets
$ 6800
Total equity
$ 6800
The (unaudited) financial statements for the half year ending 30 June 2013, record (figures rounded):
Total liabilities
$ 886,000
Total assets
$ 508,000
Net assets
$—377,000
Total equity
$—377,000
A note to the audited statements for the year ending December 2012, states that notwithstanding the deficiency in net assets, the financial reports of the College were prepared on an “on-going basis concern” because of a guarantee of continuing financial support received by the directors and the director’s belief that such support will continue to be available. Noting that the Higher Education program had now been launched and is expected to be highly profitable, the auditor wrote that the resulting profits are expected to be sufficient to ensure that the deficiency of net assets will be completely extinguished by the end of 2013.
Current budget
On 16 October 2013, the Chair provided TEQSA with budgets for “the higher education program of WBC” for the years ending 31 December 2013 and 31 December 2014. The Chair wrote that the budgets were prepared on a “worse case scenario” and demonstrate that the College can “financially sustain its higher education program” if permitted to continue to operate. The submitted budgets show that the College would break even and between December 2013 and December 2014, its net cash position would increase by about $2,000. The submitted budgets make no allowance for the $420,000 in ATO liabilities discovered by the Dean in early 2014. The budget was prepared by the Dean in consultation with Mr Thind. According to the Dean, Dr Sridaran and Mr Thind were aware of the ATO debts when the budgets were submitted to the Council for approval.
At its meeting of 17 February 2014 the Council discussed the ATO debt. The minutes of that meeting record Dr Sridaran as saying that if the College can defer its liabilities until March 2014 and continue to meet its payment arrangements, it has “ a liquidity crisis but is not insolvent”. The minutes also record the Dean saying that some staff had agreed to defer payment of wage arrears and he was hopeful payment of agent’s commissions could be deferred.
On 20 March 2014 the Council adopted a revised budget for Semester 1 of 2014. Prepared by the Dean it shows a surplus of just over $30,000. Of the $980,000 in budgeted expenditure approximately $140,000 is allocated to arrears payments. The bulk of the $1M (approx.) budgeted income is from tuition fee income. An additional amount of $165,000 is from executive training ($140,000) and study tours ($25,000). A note to the budget states that, in relation to the executive training income, discussions are underway with a view to the College providing professional training services to two Malaysian educational institutions. In cross-examination the Dean agreed that there was “nothing firm” but said he was confident that agreement would be reached with the Malaysian institutions.
According to the Dean the budget position for Semester 2 of 2014 will improve because it will not include the one-off expenditure of $120,000 included in the Semester 1 budget for payment of the rental bond and legal fees.
In January 2014 the College applied to TEQSA for an increase in student number capacity from 210 to 480. That application is yet to be determined.
Trust accounts
In its statement of reasons for the decision to reject the College’s application for registration renewal, TEQSA asserted that the College continued to fail to comply with the pre-payment condition imposed in February 2013 and had not fully complied with Provider Registration Standard (PRS) 2.4 and the relevant provisions of the ESOS Act.
The College concedes that until it took steps to introduce a revised refund policy in July 2013 it did not fully comply with the requirements of the ESOS Act relating to pre-paid fees. In September 2013, the College commissioned auditor Mr Grant Thornton to provide an opinion about whether, as alleged by TEQSA, as at 31 March 2013 there was a shortfall in the “protected amount” held by the College in its trust account. Mr Thornton agreed with TEQSA’s interpretation that deposits constituted “tuition fees” and must be held in trust until the relevant student had commenced their course of study. Applying that analysis he concluded that there was a shortfall of $126,256 in the trust account at 31 March 2013. On receipt of that report the College took immediate steps to rectify that problem.
Risk management plans
In its statement of reasons issued in relation to the Decision 2, TEQSA stated that while the College has developed a Risk Management plan it had not demonstrated compliance with PRS 3.4. TEQSA noted among other things the risks associated with the College’s financial position.
The College concedes that in the past, as pointed out by TEQSA, there have been shortcomings in respect to its oversight of financial risk management but contends these have now been addressed.
Does the College continue to meet the Threshold Standards?
The power to renew the College’s registration can only be exercised if the Tribunal, acting as substitute decision-maker, is satisfied that the College “continues to meet the Threshold Standards” (s 36(1) of the TEQSA Act). In deciding whether the College continues to meet the Threshold Standards I must have regard to the state of affairs as they now stand (Shi v Migration Agents Registration Authority (2008) 235 CLR 28). The phrase “continues to meet” indicates that I must have regard to two points in time: at the time my decision is made and the entirety of the assessment period.
As agreed by the parties, central to the determination of whether the College continues to meet the Threshold Standards are the questions: whether the College is financially viable and, whether there is satisfactory oversight over its financial viability.
While conceding the College’s “controversial history”, Counsel for the College, Mr Craddock, contends that throughout its two years of operation the College has consistently delivered a “reasonable product in sufficient demand” and none of the many concerns raised by TEQSA are directed the quality of the education provided. While acknowledging that the owners initially failed to disclose to the Council the full extent of the College’s “legacy debts” — debts largely incurred by the College’s now disbanded vocational education arm — Mr Craddock contends that there is no evidence of further debts that have not been fully accounted for. He submits that the College’s current budget, adopted by the Council in March 2014, is based on realistic assumptions about revenue and expenditure and makes allowance for both operating expenses and legacy debts. Counsel also contends that the revenue assumptions that underpin the budget are reasonable, pointing out that most of the budgeted income comes from tuition fees and has remained stable despite the uncertainty over the College’s future. In addition, he submits that the target of raising $165,000 to supplement income by providing services to overseas-based education providers, is realistic and achievable.
While conceding that the budget for the first semester of 2014 is tight, Mr Craddock contends that the evidence indicates that the College’s financial position will improve as future budgets will not carry the significant one-off liabilities, such as legal fees for these proceedings and the $80,000 bond payable to the College’s landlord, that are factored into the budget for Semester 1 of 2014.
Mr Cradock contends that the interests of existing and future students are protected by, among other things, the agreement with higher education provider, King’s Own Institute, to “teach out” current students in the event the College’s registration is not renewed, or for some other reason, it ceases to operate.
Much has changed since TEQSA decided over seven months ago not to renew the College’s registration. Responsibility for financial management, regulatory compliance and other matters has passed from Mr Thind to the Dean. Together with the Chair, the Dean has rectified many of the shortcomings identified by TEQSA in its reasons for deciding not to renew the College’s registration.
Despite significant improvement, problems, particularly in relation to the College’s finances and financial oversight, have continued. Within months of being found by TEQSA not to satisfy various Threshold Standards relating to financial viability and corporate governance, the Council, through the Dean and the Chair, discovered an ATO debt of $290,000 and the following month a further ATO debt of $130,000. That discovery is relevant for a number of reasons.
First, it placed significant pressure on an already close to break-even budget. The gravity of the situation was reflected by the comment attributed to Dr Sridaran in the minutes of the 17 February 2014 Council meeting, which indicates that at that time he was of the opinion that while not insolvent, the College faced “a liquidity crisis”. While that crisis was averted by the ATO allowing the debt to be paid off over an extended period and, as anticipated, the receipt of tuition fee income the following month, the ATO debt left little room for error or unforeseen circumstances. The Dean’s assessment that the College did not have the funds to engage an administrative officer in Semester 1, to assist him in circumstances where he was effectively performing three roles, provides some insight into his assessment of the budgetary pressures faced by the College.
Second, the discovery of the ATO debts demonstrated that the majority of Council members did not have a full understanding of the College’s true financial position. This was the second significant financial liability of which they had not been informed, since joining the Council, ten months earlier.
Third, as a consequence of not being provided with this information, the Council approved and submitted to the regulator and the tribunal, budgets which did not disclose the College’s true financial position. The budget approved by the Council in October 2013 and submitted to TEQSA, made no allowance for the ATO liability. Nor did the revised 2013/2014 budget filed with the Tribunal in late 2013, and described in the College’s amended statement of facts and contentions as prepared on a “worse case basis”.
Fourth, the discovery raises questions about the reliability of the expenditure assumptions on which the current budget is based. As outlined above shortly before the commencement of this hearing the Dean and Chair demanded that Mr Thind disclose to the Council all outstanding debts. As described by Mr Craddock that information was dragged out of Mr Thind “kicking and screaming”. This led to the production of the Liabilities Statement, which the Dean and Chair believe provides a reliable picture of the College’s total liabilities. That information is largely unsupported and reliant on the veracity of Mr Thind’s claims that: (i) he has no knowledge of any other debts apart from those listed in the Statement, and (ii) he and co-director, Ms Morris will meet all Category 3 debts.
Troublingly, the Statement makes no mention of the loans apparently made to the College by the companies of which Mr Thind is director. The evidence concerning those loans is unclear. While the Dean and Chair have different understandings about the terms of those loans, on the basis of verbal assurances given by Mr Thind, each believe none to be immediately repayable. The Dean understands the debts have been forgiven; the Chair understands the debts to be repayable only when the financial position of the College improves.
In circumstances where over an extended period, Mr Thind has repeatedly failed to disclose to the Dean, the person charged with the day-to-day financial management of the College, and other members of the governing Council the full extent of the College’s liabilities and permitted financial information to be submitted to the regulator and the Tribunal, which he knew, or reasonably should have known, to be materially incorrect, I could not be satisfied of the veracity of the information contained in the Liabilities Statement.
Throughout these proceedings repeated reference has been made to the “higher education arm” of Williams Business College Ltd. The “higher education arm” is not a legal entity. Williams Business College Ltd is the entity registered by TEQSA to provide higher education services. As borne out by the fact that the large part of the debts now borne by the College’s “higher education arm” are attributable to the College’s now disbanded vocational arm, the former is not quarantined from the financial problems facing the company. In these circumstances, the financial position of the company as whole is relevant to any assessment of the financial viability of the registered provider.
It is against this background that an assessment must be made about whether the College continues to meet the Threshold Standards. For convenience I set out in full below the provider registration standards relating to financial viability and safeguards and corporate and academic governance:
Section 2 Financial viability and sustainability
The higher education provider has the financial resources and financial management capacity to sustain higher education operations consistent with the Provider Registration Standards.
2.1The higher education provider is financially viable and has the capacity to sustain quality in its current and planned higher education operations, using realistic projections of student demand and income from all sources.
2.2The higher education provider applies, and demonstrates the capacity to continue to apply, sufficient financial resources to ensure the achievement of its higher education objectives.
2.3The higher education provider has business continuity plans and financial and tuition safeguards in place for students should the higher education provider cease to provide a course of study, cease to operate as a higher education provider or suffer a major incident affecting the operations of the higher education provider.
2.4Financial aspects of the higher education provider’s higher education operations are well-managed in accordance with legal requirements and Australian accounting standards and the higher education provider has effective arrangements for the detection and prevention of fraud and mismanagement.
2.5The financial records of the higher education provider are accurate and independently audited by an appropriately qualified auditor.
Section 3 Corporate and academic governance
The higher education provider shows sound corporate and academic governance of its higher education operations.
3.1The higher education provider has a corporate governing body that has responsibility for oversight of all of the higher education provider’s higher education operations, including conferral of its higher education awards, and to which management is accountable.
3.2The higher education provider’s corporate governing body has a majority of external members and uses a full range of expertise required for effective governance of the higher education provider, including higher education expertise and independent financial expertise, through its membership and/or through external advisors.
3.3The higher education provider’s corporate governance arrangements demonstrate a clear distinction between governance and management responsibilities.
3.4The higher education provider’s corporate governing body regularly monitors potential risks to the higher education provider’s higher education operations and ensures the higher education provider has strategies to mitigate risks that may eventuate.
3.5The higher education provider’s corporate governing body ensures that all delegations (including financial, academic and managerial) are appropriate, documented, observed and regularly reviewed.
3.6 The higher education provider’s corporate governing body has approved a current strategic plan that:
·shows the higher education provider has clarity about its future directions for higher education;
·identifies key performance indicators;
·is adequately communicated to internal and external stakeholders; and,
·guides management decision-making.
3.7The higher education provider’s corporate governing body protects the academic integrity and quality of the higher education provider’s higher education operations through academic governance arrangements that provide a clear and discernible separation between corporate and academic governance, including a properly constituted academic board and course advisory committees.
3.8The higher education provider’s corporate and academic governance arrangements demonstrate:
·the effective development, implementation and review of policies for all aspects of the higher education provider’s academic activities including delivery of the higher education provider’s courses of study by other entities;
·the maintenance of academic standards, with appropriate mechanisms for external input, in accordance with international conventions for good academic practice; and,
·effective quality assurance arrangements for all the higher education provider’s higher education operations, encompassing systematic monitoring, review and improvement.
Does the College continue to meet PR 2: Financial viability and safeguards?
PR 2.1 requires the College to be “financially viable”. The Standard provides some guidance on the meaning of that term: “the capacity to sustain higher education operations consistent with the Provider Registration Standards”.
I accept as submitted by Mr Cradock that while the College carries significant debt and its most recent budget is based on a number of unproven assumptions, this does not establish that the College is not “financially viable”. I also agree that it does not follow that because there is a risk that the College may not achieve its revenue targets or may incur costs in excess of budgeted expenditure, the College is not financially viable. Self-evidently, the budget of any organisation is based on a number of assumptions about income and expenditure. Registered higher education providers will invariably face some financial risk. A number of external factors, such as currency fluctuations and changes to visa rules, could potentially impact on student numbers and the provider’s income. Whether a particular provider is financially viable requires all relevant factors to be taken into account, including liabilities, access to capital and the reliability of any budgetary assumptions made.
The most recent version of the budget provided to the Tribunal is finely balanced. In those circumstances the reliability of any assumption made which underpin that budget, is critical. Absent any reliable supporting material I am unable to be satisfied that the Liabilities Statement correctly records all of the College’s liabilities and that the Category 3 debts, as stated, will be met by the directors. For that reason, I am not satisfied that all liabilities are accommodated in the current budgets.
The available information about the financial position of Williams Business College Ltd paints a troubling picture. The audited financial statements for the year ending December 2012 records significant liabilities and net assets of just under $7000. The unaudited financial statement for the half year to 30 June 2013, which according to the Dean does not include the ATO and North Sydney Council debts, suggests that the position may have deteriorated further.
As the evidence reveals the “higher education arm” has not been quarantined from the financial problems faced by other arms of the company. Despite a request made by the Dean earlier this year, the directors were either unable or unwilling to assist in covering the ATO liabilities. This suggests that it is unlikely that it the “higher education arm” can look to Mr Thind or any of the companies with which he is associated, to provide a cash injection.
In assessing the College’s financial viability I have decided it would be inappropriate to assume the College’s application for an increase in student numbers, is likely to succeed. Even if the College is successful in these proceedings that application will not necessarily succeed.
On the available material I am not satisfied that the College is financially viable and continues to meet PR 2.1.
Does the College continue to meet PR 3?
There is a degree of overlap between the provider registration standards relating to financial safeguards and those relating to corporate governance (PR 2 and 3).
The Charter vests in the Council responsibility for, among other things, approving and monitoring the implementation of the College’s business plan, a risk management plan and an annual budget in relation to its higher education operation, and overseeing the higher education operations. Whether the College continues to show “sound corporate governance” (PR 3) and the Council “regularly monitors potential risks of [the College’s] higher education operations” (PR 3.4) cannot be assessed solely by reference to the Charter, or, the College’s risk management and compliance plans. The steps taken to monitor potential risk are also relevant.
Members of the Council have been on notice since August 2013 that Mr Thind and possibly Dr Sridaran, have failed to disclose to them the full extent of the College’s financial liabilities. While provided with monthly cash reports, apart from the belated Liabilities Statement most members of the Council have not been provided with reliable information about the College’s assets and liabilities. As a consequence they have not had access to critical information necessary to fully understand the College’s true financial position and effectively monitor the financial viability of its higher education operations.
I agree with the submissions made by Mr Markus for TEQSA that it is no answer, as argued for the College, that the Council “could not know what it did not know”. It was open to the Council to demand audited reports on first learning in August 2013 that the College had significant undisclosed liabilities which the directors required the “higher education arm” to bear. The failure to demand that information in my opinion represented a serious error of judgement. While I accept that the current Council has regularly monitored the financial performance of the College against budget, that assessment was necessarily deficient given that the majority of Council members and those charged with the day-to-day management of the College’s finances, were not cognisant of the College’s true financial position.
Self-evidently the financial viability of the College is a potential risk to its higher education operations. By failing to take steps to appraise itself of the true financial position of the College, the Council failed as required by PR 3.4 to regularly monitor a potential risk to the College’s higher education operations, namely the ongoing financial viability of the College. That risk was not fanciful but real and material. In my opinion, the College does not, and did not, meet PR 3.4 and, as a consequence, the College has not shown sound corporate governance of its higher education operations as required by PRS 3.
Does the College continue to meet Threshold Standard 1.5.?
Threshold Standard 1.5 provides:
The higher education provider’s history, and the history of its parent entities, its predecessors and related entities, shows a sound track record in managing business operations and in the provision of education or related services at an acceptable level of quality and in accordance with any applicable regulatory or accreditation requirements.
While the College has addressed many of the shortcomings identified by TEQSA, the history outlined above indicates that it does not have a sound track record in “managing its business operations”. Two examples suffice to illustrate this proposition: (i) Mr Thind’s failure over an extended period to pay rent on the College’s campus which resulted in the lock out of students and staff and, to disclose that information to the Council and staff appointed to manage the College’s finances; and (ii) the preparation, adoption and submission to TEQSA of the October 2013 budget, which did not record a number of significant liabilities.
Conclusion
Given my conclusion about the College’s financial viability and oversight of its financial viability, it is unnecessary to consider the other areas where TEQSA, asserts the College does not meet the Threshold Standards. Not being satisfied that the College continues to meet the Threshold Standards identified above relating to financial viability and corporate governance, the power to renew the College’s registration cannot be exercised and the decision under review must be affirmed.
For broadly the same reasons, I have decided that the preferable decision is to affirm the condition decision.
Date of effect of the decisions under review
Unless otherwise specified a decision of the Tribunal comes into operation upon the giving of the decision (ss 43(5A) and 43(5B) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act).
To minimise the inevitable disruption and inconvenience that will result from the decision to affirm Decision 2 (the decision to refuse to renew the College’s registration) and, to allow current students to complete the current semester, I have decided to delay for a short period the date of operation of that decision.
The parties are invited to confer and if able to reach agreement, to advise the Tribunal by midday 16 June 2014 of the date they consider appropriate, for that decision to come into effect. In the event agreement is not reached the parties are invited to provide the Tribunal with brief written submissions by 5 pm 17 June 2014 identifying the date they consider appropriate for the decision to come into effect and arguments in support. The decision to stay the operation of Decision 2 will remain in place until the date the Tribunal’s substantive decision comes into effect.
I have decided there is no utility in delaying the date of operation of Decision 1 (the condition decision) and by the operation of s 43(5A) of the AAT Act that decision will come into effect on the date of this decision.
I certify that the preceding 100 (one hundred) paragraphs are a true copy of the reasons for the decision herein of Senior Member A K Britton .................[SGD].......................................................
Associate
Dated 12 June 2014
Date(s) of hearing 7 and 8 April 2014 Counsel for the Applicant Gerard Craddock SC Solicitors for the Applicant Surry Partners Lawyers Solicitors for the Respondent Andras Markus, Australian Government Solicitor
1
2
0