61B The Secretary of State may give a DFE Principal Agreement Warning Notice to the Company, each of the Directors and the members of the Local Governing Body where3:
a) the Secretary of State is under a liability to make payment to the LA pursuant to a DFE Principal Agreement in respect of any Normal Payment Matters; or
b) the Secretary of State considers that in the immediately preceding 12 month period, the aggregate of payments made by the Company and/or a PFI Academy to the LA pursuant to a DFE Principal Agreement in respect of Normal Payment Matters has reached a level which the Secretary of State considers to be excessive and which may (assessed objectively) cause the PFI Academy material financial difficulties; or
c) NOT USED; or
d) [the Secretary of State considers (acting reasonably) that the Company's and/or a PFI Academy's compliance with its obligations under a [Development and School Agreement] [School Agreement] and/or a DFE Principal Agreement (including its approach to contract management and cooperation) is such that claims and/or disputes under such contracts are of a number and/or nature likely to materially and adversely impact on the provision of educational services at the PFI Academy; or]
OR
[the Secretary of State considers (acting reasonably) that there has been a Persistent Breach of a [Development and School Agreement] [School Agreement] and/or a DFE Principal Agreement likely to materially and adversely impact on the provision of educational services at a PFI Academy, and for the purposes of this Article 61B(d) "Persistent Breach" means:
(i) a particular breach (including, but not limited to, a breach which relates to contract management and co-operation) which has recurred three (3) or more times in any rolling six (6) month period; or
(ii) the occurrence of five (5) or more different breaches (including, but not limited to, breaches which relates to contract management and co-operation) in any rolling six (6) month period; or]
e) the Company and/or a PFI Academy has committed a material breach of a [Development and School Agreement] [School Agreement] and/or a DFE Principal Agreement.
[Note that in relation to Article 61B(d), we have proposed two options, please advise of your preference.]
61C. The Secretary of State may appoint Additional Directors to the Company at any time and as he thinks fit if4:
a) the LA has recovered any sums from the Secretary of State pursuant to a DFE Principal Agreement; or
b) the Company and/or a PFI Academy has received a DFE Principal Agreement Warning Notice pursuant to Article 61B and the Company has not, within [10] working days of such notice provided a remediation plan: (i) setting out the Company's proposals to improve compliance with a relevant [Development and School Agreement] [School Agreement] and/or a relevant DFE Principal Agreement; (ii) setting out a response by way of explanation to the description of the breach or other circumstances which gave rise to the DFE Principal Agreement Warning Notice; and (iii) dealing with such other matters as may be the subject of the relevant DFE Principal Agreement Warning Notice, such plan to be acceptable to the Secretary of State (acting reasonably); or
c) [the Secretary of State considers there to be mismanagement of the Company's and/or a PFI Academy's finances; or]
OR
[the Company has failed to comply with a material recommendation of the auditors appointed by the Secretary of State under clause 70 of the Master Funding Agreement where such recommendation relates to the implementation of any statement of any recommended accounting practice required to be adopted by the Company; or]
d) [the Company and/or a PFI Academy has committed a material breach of a [Development and School Agreement] [School Agreement] or a DFE Principal Agreement (whether or not such breach has been the subject of a DFE Principal Agreement Warning Notice); or]
OR
[the Company and/or a PFI Academy has committed a breach of a [Development and School Agreement] [School Agreement] and/or a DFE Principal Agreement which causes a termination event to occur in respect of the LA under the terms of a Project Agreement; or]5
e) the circumstances envisaged by clauses 5.24 or 5.25 of the Supplemental Funding Agreement in respect of EAG funding are applicable;
provided that the Secretary of State may only appoint such Additional Directors if to do so is in the interests of the PFI Academy. For the avoidance of doubt, except in relation to the circumstances detailed in Article 61C(b), the Secretary of State is not required to serve a DFE Principal Agreement Warning Notice prior to appointing Additional Directors under Article 61C.
61D The Secretary of State shall notify the Directors of the roles and duties to be fulfilled by the Additional Directors.
61E The Existing Directors acknowledge and agree that the Additional Directors shall be entitled to fulfil such roles and duties and the Existing Directors shall co-operate with the Additional Directors so as to enable them to perform their roles and duties.6
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3 See footnote in respect of 61C for a discussion of this provision.
4 The intention of the warning notice and flooding arrangements in Articles 61B and 61C is to provide the Department with an ability to exercise varying degrees of control over the Academy, and in so doing enable the Department to manage and mitigate its potential exposure under the Normal Payment Matters in the DFE Principal Agreement as well as in times of crisis. Readers are advised to review the Department standard form Principal Agreement, and drafting and footnotes therein for further information. In the event that difficulties in the Authority / Academy relationship arise, the Department anticipates in most circumstances submitting a suitable DFE Principal Agreement Warning Notice to the Academy, thereby allowing the Academy the opportunity to rectify and/or remedy the circumstances. In the event that the issues are not resolved, and the Department remains concerned, it will have the ability to flood the Company and thereby influence decision making. The DFE retains the ability to flood the Company without having first provided a warning notice if it considers such action necessary in the circumstances. Readers will note that the flooding triggers in Article 61C are carefully scoped, and intended to apply directly to the features of the Development and School Agreement and DFE Principal Agreement. They are also deliberately widely drafted, so as to allow the Department flexibility as to exercising its rights. Note that the Academy should take comfort from the fact that DFE is only permitted to flood where it is in the Academy's best interests for it to do so.
5 If this option is used, add a definition for "Project Agreement" to the Articles which reads along the following lines: "means a project agreement between the LA and a project company for the design, build, finance and operation of school facilities (including the relevant PFI Academy's facilities) (as may be varied from time to time)". Note that this defined term has not been made specific to a particular Project Agreement as it is possible the Company (i.e. the multi academy trust) might in the future operate more than one PFI Academy.
6 Articles 61B and 61C provide background on why the DFE required the ability to flood the Company of a PFI Academy. Key decision making may, however, rest at local governing body level provided the Company has delegated its powers to a Local Governing Body in accordance with the provisions of the Articles. The Academy should take comfort from the fact that Clause 102 of the Master Funding Agreement provides that DFE may only flood the board of the Company where the Company has not delegated the relevant decisions and powers which gave rise to the right to flood to the Local Governing Body.