There are signs that INTO University Partnerships’ (INTO) relationship with the University of South Florida may be ending after a recent Court Evidentiary Hearing1 on 19 August 2022. While no public record of a judgement has appeared, rumors suggest there are communications in circulation advising that enrollment to INTO University of South Florida (INTO USF) will cease. If any authoritative source can provide an alternative explanation or clarification, I will be happy to correct any misunderstandings.
It is appropriate to note that both INTO and the University of South Florida still feature INTO University of South Florida on their websites at the time of writing (27 August). The INTO Study site for students also offers the opportunity to apply for courses at the university. This may be the result of a time lag or the possibility of further discussion and this blog is written in good faith to explore the background to the Court case and the joint venture’s history.
The underlying case for a university going to court to end a joint-venture pathway that was once among the most successful in the world deserves attention. Publicly available court filings outline the case2 and material on the INTO Corporate and University of South Florida websites is used to summarize the history and other background about the joint venture relationship. The source of further commentary is referenced through hyperlinks.
Summary of the Case
A Court filing3 from USF Financing Corporation (USFFC) to the Thirteenth Judicial Court in and for the state of Florida Civil Division dated 15 July 2022 seeks a “declaratory judgment that the 2010 stockholders Agreement between USF FC, the Company4, and the INTO Defendants is terminated as of April 21, 2022.” The grounds are that the joint venture is “insolvent under both a balance sheet basis and inability to pay debts as they become due, and (b) has demonstrated a material adverse financial position where it could not perform all or a substantial part of its obligations..”. The particular difficulties of pathway programs in the United States have been widely explored and the filing incorporates direct reference to my blog of February 2022 regarding the growing level of indebtedness of INTO’s US ventures.
With an eye on its responsibilities for “stewardship of public resources” the University of South Florida terminated the program in April 2022 and “initiated the process for the teach-out of the programs’ enrolled international students….” The filing asserts that “The INTO defendants refuse to acknowledge the Stockholders Agreement termination and refuse to participate in the teach-out or develop the Plan to dissolve and wind-up the Company.” There are a number of points made around the fiduciary duty of the three INTO appointed Directors of INTO USF Inc, to creditors and shareholders “once a company is insolvent” with a memo, the accompanying Exhibit G of the filing, asserting that “the INTO appointed directors have a conflict of interest.”
INTO University of South Florida
INTO partnered with the University of South Florida in 2010 and the case study on the INTO website asserts “extraordinary” enrollment and economic impacts. The accompanying graph (reproduced below) suggests that even if this was true up until 2016/17 the ensuing years have seen a significant decline in enrollment to the pathway. Enrollments look to have peaked at around 800 but have subsequently fallen by around 100 a year to stand at c300 (this would be supported by the USF Fact Books showing non-degree seeking international students declining by a similar amount).
Source: INTO Global.com
The Court filing includes INTO USF, Inc’s Financial Statement to June 30, 2021 (Exhibit E) showing a net loss of $3.276m that year and $206,000 the year before. This is supported by the USFFC’s Financial Statements to 30 June 2021 which comment on “approximately $3.3 million of net loss incurred by INTO USF during the year ended June 30, 2021.” USFFC’s share of INTO USF’s “net accumulated (deficit)” was shown as $1.794m.
As noted in the February 2022 blog “China Crisis for US Pathways”, since 2018 when INTO Illinois State University opened, “total level of indebtedness across all US operations has nearly doubled from £18m to £35m”. This figure included the debts at institutions where joint ventures have now closed – Washington State University, Marshall University and Colorado State University. The blog also reflects that INTO has become the 100% owner of what was previously a joint venture at St Louis University.
One feature of both INTO USF (the second INTO partnership in the US) and INTO Oregon State University (the first) is that they are listed in INTO’s Annual Report as Inc. and are C-corporations. Informed opinion suggests that closely held corporations (which these appear to be) “have been held to higher fiduciary duty standards” and this may be reflected in the “conflict of interest” comment. Later US joint ventures are listed as LLC’s where, “By agreement, parties can alter certain duties to expand, restrict, or eliminate fiduciary duties owing to either the LLC or the other members and managers”, which suggests there may have been advice leading INTO to pursue alternative structures.5
Summary
It is worth waiting to see any Court judgement and whether there is an appeal process but the filing and other financial statements seem definitive in outlining the decline of the joint-venture’s financial situation. If the joint venture is closed it would leave INTO with six joint ventures in the US, as well as the fully owned St Louis University operation and the “comprehensive partnership” with Hofstra (which is not listed in INTO’s annual reports as having joint ownership).
As well as the closures in the US there have been several INTO joint ventures shut down in the UK in recent years. In addition, INTO has taken a controlling interest in the joint venture with Newcastle University and the financial arrangements at the joint venture with City University have changed. As noted in a recent blog the yearly financial reporting for INTO University of East Anglia is shown at Companies House as overdue, for a joint venture under significant financial pressure.
On top of all that there are rumors of imminent changes at the top in the INTO Finance team and the return of a familiar face to the INTO North America team but that is for another day.
Notes
- Case number: 22-CA-006726 before Judge D.D. Farfante
- I am unaware of any written response by INTO University Partnerships to the case filed
- Filing#153460265 Efiled 07/15/2022 07:45:26 PM
- “the Company” is defined as INTO USF Inc which is the C-Corporation established in 2010 with stockholders USFFC and INTO USA LLC. Its board has three nominees from INTO and three from USFFC.
- The purpose of this paragraph is to provide further information which may be relevant and the quoted elements comes from the source indicated. There is no intention to give legal advice or guidance and readers are advised to seek appropriate counsel on company structures.
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