It has become popular for fee paying schools to have pre-paid school fee plans. Such plans help parents manage school fee obligations by giving them certainty in relation to fee levels and they allow others, such as grandparents, to contribute payments in advance.
Payment plans can be structured by schools in a variety of ways but a common scenario is that fees can be paid in advance by parents for a set period and so allow parents to lock in fees at a level payable at the date of payment. Some parents like to do this as it insulates them against future fee rises. The benefit for the school is that fees are received well in advance and can be used by the school to reduce debt or contribute to capital works.
Schools need to consider whether or not their pre-paid school fee plan constitutes a financial product. Depending on how such arrangements are structured they could be a security, a managed investment or a facility for managing risk. Indeed, ASIC has recognised this and has issued a class order COT/151 which exempts schools from the financial services provisions of the Corporations Act in relation to school enrolment deposits.
This Class Order applies to any “person who conducts an establishment (“school”) in which children are given formal primary or secondary education, and the officers, employees and agents of the school”.
It exempts schools from Ch 2L (debentures), Ch 5C (managed investment schemes), Ch 6D (fundraising), section 992A (hawking provisions regarding certain financial products), section 992AA (hawking provisions regarding managed investment products) and Part 7.9 (financial product disclosure and other provisions relating to the issue, sale and purchase of financial products) of the Act.
Importantly, ASIC also exempts schools from the requirement to hold an Australian Financial Services Licence in relation to any financial product referred to in Schedule B of CO 02/151. Schedule B covers any of the following:
(a) a deposit of money with a school or with a person conducting a school;
(b) the operation of a managed investment scheme by a school or by a person conducting a school;
(c) the making of offers to receive deposits of money or to issue or arrange the issue of interests in a scheme, and the issue of such interests;
(d) the issue of forms of application in relation to such deposits or interests; and
(e) a recommendation to acquire any financial product mentioned above, where:
(f) the making of the deposit or the subscription for an interest in the managed investment scheme is required as a condition of the enrolment of a child in the school; and
(g) each interest in the deposit or managed investment scheme is merely incidental to that enrolment.”
Arguably while prepayment of school fees is optional, it is still a condition of enrolment that the school fees must be paid and deposited with the school and therefore the plan could fall within the Class Order. However, whether this is the case will naturally depend on the circumstances.
