In small business, the establishment phase is the most challenging. This crucial period can make or break a business and will shape the essence of the organisation for years to come. Some entrepreneurs thrive in such conditions, whereas some people struggle to keep afloat. It is common practice for one person to establish a business and, once it is established, sell it to another.
So, can you register a Registered Training Organisation (RTO) just to sell it? We unpack this question by examining the Australian Skills Quality Authority’s (ASQA) current policy and discussing the finer legal issues.
The answers might surprise you.
ASQA’s current position
ASQA reports that much of its limited resources are allocated to regulating small, newly established RTOs. In an attempt to plug this drain on its resources, ASQA has been increasing scrutiny on new entrants to the vocational education and training (VET) sector.
ASQA has a new strategy for assessing initial applications for RTO registration under the National Vocational Education and Training Regulator Act 2011 (Cth) (NVR Act). In an official ASQA webcast about the changes, ASQA announced that it would no longer tolerate the practice of “harvesting” or “shelf” RTOs. According to ASQA, a shelf RTO is where a person establishes and registers one or more RTOs for the purpose of selling it.
ASQA disapproves of shelf RTOs. Why? It appears their reasoning is as follows.
During the initial registration process and when an RTO changes hands, ASQA is required to scrutinise the owners. Doing these investigations twice (once for the initial registration application and again when the RTO is sold) increases ASQA’s workload. ASQA also claim the investigations prescribed by the NVR Act after an RTO is sold are less stringent than the initial registration stage.
During the webcast ASQA warned that it would reject registration applications it considered were for shelf RTOs. The reason for the refusal being that “the applicant did not have any genuine intention to provide vocational education and training.”
It appears that ASQA has remained true to its word. In the last few months, we have been made aware of a number of initial applications for registration that ASQA rejected on the basis that “the applicant did not have any genuine intention to provide vocational education and training.”
ASQA has rejected these applications because persons involved with the applicant organisation (including, its shareholders, directors, chief executive officer etc.) have established RTOs in the past and sold them shortly after registration. This extends to both applications for RTO registration under the NVR Act and applications for registration on the Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS) under the Education Services for Overseas Students Act 2000 (Cth) (ESOS Act).
Can ASQA reject applications because it believes “the applicant does not have any genuine intention to provide vocational education and training”? Let’s see…
Initial registration requirements
The NVR Act sets out the requirements an RTO must meet in order to be registered. These are:
Standards for Registered Training Organisations (RTOs) 2015
Fit and Proper Person Requirements
Financial Viability Risk Assessment Requirements
Data Provision Requirements
Australian Qualifications Framework
Student assistance laws
Material change notification requirements
Relevant requests for information by ASQA
Relevant directions made by ASQA
There is nothing in the initial registration requirements preventing a person from establishing an RTO for the sole purpose of selling it. There is also nothing that requires persons involved with the applicant organisation to have a genuine intent of providing VET.
Seemingly, ASQA agrees with this too. In an official submission regarding the review of the NVR Act, ASQA discussed the issue of shelf RTOs and essentially admitted the absence of any legislative basis for refusing applications for this reason. In fact, ASQA proposes law reform on this very issue, stating:
ASQA proposes that the NVETR Act be amended to provide that applicants for registration or renewal of registration be required to demonstrate a genuine purpose of a commitment to providing high quality VET and the capability to do so…
This confirms the absence of a legislative requirement in the current laws. It appears that ASQA is merely exercising discretion, rather than applying the letter of the law, when it refuses a registration application because it considers there is no genuine commitment to provide VET.
Who is the “applicant”?
As discussed above, ASQA rejects applications if it believes that the applicant has no genuine intention to provide training and assessment. Let’s assume for a minute that ASQA has the power to reject applications on this basis. If this is the case, then we must understand the definition of the “applicant”.
The NVR Act states that “a person” may apply to ASQA for registration as a RTO. However, in most cases, the applicant is not an individual, it is a private company that has been established for the sole purpose of delivering VET. Under Australian law, any company is classified as a legal person. This means that a company is separate from its shareholders, directors, management and employees. In other words, the law generally considers a company to have a separate legal identity to its owners and others who may control it.
Now, turning back to the question at hand. According to the law, the applicant for the initial registration is the company itself, and not its owner/shareholders etc. Therefore, if the company intends to provide VET to students, which presumably it does because it has been established exactly for that purpose, the company owner, director and staff may change, but the intention of the company remains unchanged.
Therefore, so long as the new owners intend to continue operating the company as an RTO, the applicant arguably has a genuine and continuing intention to provide vocational education and training.
Where does that leave us?
It is arguable that ASQA’s current policy to refuse applications for shelf RTOs on the basis that “the applicant does not have any genuine intention to provide vocational education and training” is legally flawed.
Our vindication for this position is two-fold. Firstly, the NVR Act’s list of initial registration requirements does not require a “genuine intention” to provide VET. Secondly, ASQA’s interpretation of “applicant” is sketchy.
As far as we have been able to determine, this issue has not come before the Administrative Appeals Tribunal. However, it is only a matter of time. In determining such a case, the Tribunal would consider whether ASQA has erred in applying the NVR Act. We anticipate clarification and guidance from the Tribunal on this topical issue.
For advice on your rights and assistance, speak with your lawyer.
Disclaimer: This article has been based on Australian law and practices current as at the date of publication. Information contained in this article constitutes legal information and should not be viewed as legal advice. You should consult with a lawyer before you rely on this information.