28 FEBRUARY 2008

NEW ZEALAND GAZETTE, No. 41

1203

Education

Education Act 1989

Risk Assessment Criteria for Tertiary Institutions

Pursuant to section 195A of the Education Act 1989 (incorporating all amendments), the Secretary for Education hereby publishes criteria for assessing the level of risk to the operation and long-term viability of tertiary institutions.

Nothing in this notice limits or affects the duties of tertiary councils under section 181 of the Education Act 1989 or any other duties or obligations of institutions or councils under any enactment, regulation or order.

Introduction

Under sections 195B to 195D of the Education Act 1989, the nature of the action available to the Secretary or the Minister depends upon an assessment of the level of risk to the institution or the operation or long-term viability of the institution.

The levels of risk and the nature of the actions available are:

Level 1: If the Secretary has reasonable grounds to believe that an institution may be at risk, the Secretary may require the council of the institution to provide specified information or reports about the operation, management or financial position of the institution at a given time (section 195B).

Level 2: If the Minister considers on reasonable grounds that the operation or long-term viability of an institution is at risk, the Minister may appoint a Crown Observer to the institution (section 195C).

Level 3: If the Minister believes on reasonable grounds that there is a serious risk to the operation or long-term viability of an institution and other methods of reducing that risk have failed or appear likely to fail, the Minister may dissolve the council of the institution and appoint a Commissioner to act in its place (section 195D).

After consultation with institution councils, the Secretary has determined (pursuant to section 195A of the Education Act 1989) criteria for assessing the level of risk to the operation and long-term viability of institutions. Those criteria are contained in the table set out below.

The greater the number of criteria which an institution meets, the greater the level of risk to its operation and long-term viability. The more adverse the position of an institution with respect to any of the criteria (for example, the greater the extent to which its Liquid Funds Ratio is less than 12.0%), the greater the level of risk to its operation and long-term viability.

Defined Terms

Words and phrases defined in the Education Act 1989 (and not defined below) bear the same meanings in this notice.

In this notice:

“Approved Borrowing Agreement” means an agreement between an institution and a third party, under which the institution may borrow money, issue debentures or otherwise raise money, which has been entered into by the institution with the written consent of the Secretary pursuant to section 192 of the Education Act 1989 (including any such agreement as it may be modified from time to time with the written consent of the Secretary).

“audited” means, in respect of an institution and any financial statements or financial statements component relating to any financial year of that institution:

(a) the audited financial statements or audited financial statements component (as the case may be) for that financial year; or

(b) (except in relation to risk criteria 22 below) if no such audited financial statements or audited financial statements component (as the case may be) for that financial year have or has been submitted to the Secretary within 120 days of the end of the relevant financial year, until they are or it is so submitted the unaudited financial statements or relevant financial statements component (as the case may be) in respect of that financial year most recently submitted to the Secretary.

“Available Credit Lines” is the aggregate amount able to be borrowed by an institution under any committed borrowing facility, less any amounts actually borrowed under those facilities, as at the balance date to which any audited actual or budgeted (as the case may be) statement of financial position for an institution relates.

“Debt” is the total of amounts recorded as debt in the audited or budgeted (as the case may be) statement of financial position of an institution, whether or not interest is payable on that debt.

“debt/equity ratio” means a ratio of debt to equity (however that ratio, that debt and that equity are calculated and described).

“Default Event”, in respect of an institution which is party to an Approved Borrowing Agreement, means any event or circumstance (however described) which (i) constitutes a default (however described) by that institution under that Approved Borrowing Agreement and/or (ii) results (or may result) in the date for repayment of any amount owing by the institution under that Approved Borrowing Agreement being advanced and/or (iii) entitles (or may entitle) any lender under that Approved Borrowing Agreement to require early repayment by that institution of any such amount, to refuse to advance any further amount to that institution, to review loans made by it to that institution or to take or refuse to take any other action under that Approved Borrowing Agreement.

“Default Debt/Equity Ratio” in respect of an institution is the ratio calculated as follows and expressed as a percentage:

Debt
Debt + Equity

“Default Interest Cover Ratio” in respect of an institution is the ratio calculated as follows:

Operating Surplus / Deficit + Depreciation + Amortisation + Interest Expense
Interest Expense