Governors have explored the legal scenarios if London Met goes bust

Governors at London Metropolitan University have received legal advice on their responsibilities should the university go bankrupt.

The university is in financial trouble after the Higher Education Funding Council for England decided to claw back £36 million that it paid for teaching, based on inaccurate student data submitted by the university.

Minutes of a governors' meeting in February say: "Depending on the timing of repayment of historical holdback, the cash position of the university could become inadequate in 2011-12."

Because the university is incorporated as a company, corporate insolvency law applies. Law firm Eversheds advised that governors were "arguably de facto directors" under the legislation. Among matters discussed were "different responsibilities of directors that arose where there is no reasonable prospect of the company avoiding insolvent liquidation".

Minutes of the following meeting in March record "considerable concern" that the university's total funds and assets could fall to £34.4 million. The university plans to cut up to 550 posts, which the University and College Union said could equate to one in four staff.

The minutes record a request for £200,000 for a "PR campaign to combat stakeholders' concerns about the future viability of the university". Governors agreed that this was a good idea but asked for a detailed proposal.

Campus unions have called for an independent inquiry into university managers' submission of inaccurate data and Hefce's actions in advance of any restructuring.

Figures obtained under the Freedom of Information Act show that London Met reported inaccurate data in 2005-06, 2006-07 and 2007-08. It said that 2 to 3 per cent of its students had failed to complete courses whereas Hefce put the rate at about 30 per cent.

The UCU said the figures raised more questions than they answered. A spokeswoman said: "It is difficult to see why discrepancies on this scale were not challenged much earlier; the results for the university would certainly have been less catastrophic had auditors been more critical a few years ago."

Brian Roper resigned as vice-chancellor in March but will remain on the payroll until December. His resignation has not been formally linked to the data errors.

A Parliamentary debate on the situation at London Met was due to be held on 20 May, after Times Higher Education went to press.

A spokeswoman for London Met said: "Our most recent forecast shows net assets at 31 July 2009 as £100.9 million before pension liability and £53.2 million after it.

"The university has agreed a repayment schedule with Hefce which spreads repayment over a six-year period. The phasing of the repayment helps the immediate impact on our cash, and the university is putting in place a robust cost reduction programme designed to ensure our costs match our new income base and funded student number base. Failure to take such decisive action will lead to the university's having significant cashflow problems in 2010."

This week, the governors appointed Alfred Morris interim vice-chancellor, as predicted on www.timeshighereducation.co.uk on 12 May. Mr Morris, who will take up the new role at the end of June, is currently acting vice-chancellor of the University of Wales, Lampeter. He took on that position in the wake of an independent report commissioned by the Higher Education Funding Council for Wales that was highly critical of the university's management. Mr Morris has steered Lampeter towards a merger with Trinity College Carmarthen.

Medwin Hughes, principal of Trinity, will take over as acting vice-chancellor of Lampeter.

melanie.newman@tsleducation.com.