Nowadays, many universities partner with third parties in the private sector to enrol and deliver (or assist in the delivery of) courses to students, particularly international students.

Universities remain responsible for compliance in relation to third party arrangements

There are varying contractual arrangements under which students are enrolled and courses are delivered. Different types of arrangements may significantly impact the options available to a university in the event of the financial collapse of a third party provider.

For example:

• The third party may deliver higher education courses on the university's behalf to students enrolled with the university. Alternatively, the third party may enrol students in a package of courses comprising a course with the third party provider and a course with the university. The completion of the former is intended to act as a guaranteed pathway into a higher AQF level course with the university.
• The third party may deliver a higher education course (such as a Diploma or Bachelor course) on behalf of the university. Alternatively, the third party may deliver non-AQF award courses intended to prepare international students for enrolment in a higher education course with the university, including for example English Language Intensive Courses for Overseas Students (ELICOS courses) or other courses that equip international students with the skills and capabilities to seek entry into higher education courses in Australia (foundation programs).
• The third party may primarily provide services to enrol international students in courses with the university, but play a more limited role in partnership with the university in the preparation for and delivery of courses to the students when they arrive in Australia. Alternatively, the third party provider may, in effect, enrol and deliver the courses to the students, subject only to oversight of its operations by the university, supplying all the resources (physical, human and intellectual property) needed for that purpose.
• The third party may provide its services on land and premises owned by the university. Alternatively, the third party may provide its services (including the delivery of courses) on premises which it owns or controls, being premises registered on the Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS) as the registered location for the delivery of the courses for the purposes of the Education Services for Overseas Student Act 2000 (Cth) (ESOS Act).
• The third party may provide its services in Australia. Alternatively the third party may provide services overseas, with offshore delivery of the course forming part of a transnational education arrangement that leads to the award of an Australian higher education qualification.

Notwithstanding the many and varied arrangements that are possible, there is one constant in Australia's regulatory regime: If the third party is delivering services on behalf of the university, then the university retains responsibility for ensuring compliance with the relevant regulatory obligations. For example:

• If a university engages a third party to provide a course (in whole or part), the completion of which will lead to the conferral of a higher education award by the university, the university must ensure that the third party provides the course consistently with the Higher Education Standards Framework (Threshold Standards) 2015 (Cth) (Threshold Standards): see the Tertiary Education Quality and Standards Agency Act 2011 (Cth) (TEQSA Act), s.26. The Tertiary Education Quality and Standards Agency (TEQSA) expects that universities will maintain accountability for quality assurance of the courses, monitor their delivery and be able to demonstrate that all regulatory requirements are met. TEQSA also considers that entry into third party arrangements requires notification to TEQSA under s.29 of the TEQSA Act.
• If a university engages an education agent to represent it for the purpose of enrolling international students with the university, the university remains responsible at all times for compliance with the ESOS Act and the National Code of Practice for Providers of Education and Training to Overseas Students 2018 (Cth) (National Code): see the National Code, cl.4.
• If a university intends to deliver a course (higher education or otherwise) to an international student pursuant to an arrangement with a third party, the university must seek approval from TEQSA, either at the time of applying for registration of the course on CRICOS or before it implements any third party arrangement where the course is already registered on CRICOS: see the National Code, cls.11.1.4 and 11.3. In determining whether to approve registration of the course pursuant to the third party arrangement, TEQSA can be expected to satisfy itself that the contractual arrangements are appropriate.

As a consequence, where universities enter into third party arrangements for the enrolment and/or delivery of courses to students, they must take care to ensure that the contractual arrangements impose the necessary obligations on the university to ensure compliance and, importantly, give the university all the rights and powers to oversee the arrangement effectively and take corrective action if necessary (including termination of the arrangement and exercise of necessary step in rights to minimise prejudice to students).

In the context of COVID-19, the threat of financial collapse for a number of private providers is putting these third party arrangements under the spotlight. In each case, the university needs to consider what steps can and should be taken to avoid or minimise prejudice to students in the event that a third party involved in the enrolment or the delivery of their courses collapses.

Collapse of a third party provider

In an environment where cashflows are likely to be constrained for some time, universities should consider how they will respond if a third party provider cease to be financially viable, and whether there are steps that can be taken immediately to minimise the potential impact of third party insolvency.

Pre-planning

Part of this analysis involves considering in advance the risks that may arise if a third party collapses. Some key considerations include:

If a third party is placed into voluntary administration or liquidation, there is a high risk it will fail to comply with its contractual obligations and the university will be legally prevented from bringing court action to force compliance under insolvency laws. Some key practical questions flow from this.

• Does the third party control any online platforms used in the delivery of the courses? If so, how will the university continue to deliver those courses if it loses access to the platform (without prior notice) in the event of a third party collapse?
• Does the third party control any critical course materials, IP or student records/data that the university would need to access to deliver courses to students going forward? To the extent possible, the university should gain access to those materials in advance of any insolvency, as it may face insurmountable difficulties doing so afterwards.
• Where the third party delivers courses directly to students, what would the university need to take over delivering those courses in the event the third party failed? Does it have access to premises, student records, relevant equipment? Is there contingency planning that could be done in advance to maximise the possibility the university could secure what is required?
• What regulatory notifications need to be given in the event the third party collapsed? How would the university communicate with students and manage the inevitable reputational impact?
• Do all payments flow from the university to the third party, or does the third party collect and remit monies to the university under a shared revenue arrangement? If the latter, this may reveal regulatory non-compliance if the arrangements concern international students, in particular the obligations concerning receipt of pre-paid tuition fees in the protected account under the ESOS Act. It also raises additional risks in the event the third party is placed in liquidation. In that scenario, the liquidator may be entitled to ‘claw back’ payments made to the university in the six months prior to the liquidation (notwithstanding those payments were appropriately made), on the basis they constitute voidable ‘unfair preferences’. There are often steps that can be taken in advance to minimise this risk.
• Where payments are made to a third party in advance of services being delivered, is there a means to legitimately hold back payments to avoid the risk the money will be thrown away if the third party collapses in advance before services are delivered?
• Is any property of the university in the possession of the third party? If so, does the arrangement give rise to a security interest that should be registered on the Personal Property Securities Register (noting that an unregistered security interest may vest in the third party in the event of liquidation)?
• If key contracts include clauses enabling the university to terminate the arrangement, vary performance or gain further rights by reason of third party insolvency, will the operation of these clauses be impacted by the ipso facto provisions of the Corporations Act that stay the operation of clauses that are enlivened by a prescribed insolvency trigger event?

Assessing requests for further support

For some third parties in the higher education sector, maintaining an ongoing relationship with a university may be critical to the viability of the company. Third parties who are experiencing financial distress may reach out to seek further comfort or support from the partner universities they depend on.

In this scenario, universities should tread carefully. If the university wishes to terminate the relationship, can it do so lawfully?

If the university plans to support the third party (eg to avoid financial and reputational risk to its own operations, reduce regulatory risk or to gain a stake in an adjacent business), it should carefully consider (a) the means by which this could be achieved, and (b) whether there are ways of structuring and documenting the support that reduces the risk for the university if the third party fails in any event.