Deficit balances are reimbursed to the Local Authority by the Department of Education when a school converts to an academy. The Department of Education then recovers the money back from the academy through abatement of the General Annual Grant (GAG).
The Department of Education has to ensure the amount due is a true reflection of what is owed and will only pay once the amount is agreed by both parties.
Any dispute on the balance is referred by the AT to the Secretary of State for a review.
If a school is concerned that the size of its deficit could prevent it from converting, but the school is not eligible for intervention or otherwise eligible to be treated as a sponsored academy, it is open to the LA to agree to absorb part or all of the deficit rather than insist on it being repaid by the school. This is most likely to apply where the school is joining the AT of an external sponsor, but as a converter academy.