Court orders government to release $6.5 million of funding for Malek Fahd Islamic School

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One of Sydney's largest private schools will have about $6.5 million in federal funding restored to it after a Federal Court judge found it would have to close without the money, affecting thousands of students.

Malek Fahd Islamic School in Sydney's west, which has about 2400 students and 250 staff, would have had to go into administration without the funds, which the federal Department of Education has been withholding since April, the judge found.

"We're very, very happy with the outcome," the chairman of the school's board, Dr John Bennett, said. "The school is now in a position to operate as normal in term three."

The department decided to delay the school's funding while it waits for the outcome of a separate legal case to revoke its approval, after an investigation found the school was operating for profit and handing millions of dollars to the Australian Federation of Islamic Councils (AFIC) in inflated rent payments.

The school has previously been ordered to recover $4.7 million from AFIC.

Dr Bennett said Malek Fahd is currently in the middle of a legal battle with AFIC to renegotiate the existing rental agreement signed by the previous board, which had close links to the federation.

The school appointed a new board in March last year and Dr Bennett said "everything is done very differently now, the way finances are managed, governance arrangements in the school".

However, the department says it still does not meet the requirements that apply to all education bodies seeking federal funding and continues to have "unresolved issues involving past boards".

"The department considers that the authority for Malek Fahd Islamic School remains non-compliant with the Australian Education Act 2013," a spokesman for the department said.

The decision to revoke its approval was made in February last year and upheld by the Administrative Appeals Tribunal at the beginning of this year. The Federal Court is due to rule on the matter following a hearing in May.

About 75 per cent of the school's funding comes from public sources. It received $76 million from the federal government between 2012 and 2016 and will have received a total of $11.5 million this year once funding is restored.

Dr Bennett said the board was "very happy and keen to work with the Commonwealth and state government to resolve any lingering issues".

"We provide them with reports all the time and the current board has not made any payments to AFIC since early March last year," he said.

"When we do, it will have to be at fair market value. It's probably one of our biggest challenges because there's an agreement in place.

"We have an action in the Supreme Court against AFIC so we're seeking to redress that."

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