Southern Cross Crisis - Implications for local authorities and PCTs
Local authorities, and PCTs commissioning Continuing Health Care, will need to keep a close eye on developments at Southern Cross. As the Group provides care for in the region of 37,000 residents (approximately 31,000 in the elderly care category) across over 750 care homes, the uncertainty over its continuing trading is likely to impact upon the vast majority (if not all) of local authorities and PCTs. Exposure will be greater in some regions than others but, particularly with out of area placements, there are unlikely to be any commissioning authorities who are completely untouched by the events. For some, the crisis potentially jeopardises the placements of hundreds of vulnerable adults for whom they are responsible.
At present, there is great uncertainty as to how the Group’s financial crisis will be resolved. Much will depend upon the Group’s investors, who have been called to a meeting on 12 July 2011, and the landlords who have been requested to accept a 30% rent reduction over the next four months. However, even this reduction, if accepted, may be insufficient to see the Group survive another quarter. The same could be true of the reported 3000 job cuts which it is proposing by October.
There are reports in the press of the possibility of a Government bail out, but if this is not forthcoming the main insolvency options for the Group are as follows:
This is a procedure where a company may be rescued or reorganised or its assets realised under the protection of a statutory moratorium preventing action being taken against it. This may result in the business continuing but in a restructured format (such as with the loss of a number of ‘loss-making’ homes) and under new ownership.
This is not an insolvency proceeding in the strict sense but rather a remedy for a secured creditor to allow for the realisation of a company asset subject to security, such as property.
This is where a company and its creditors come to an agreement, usually involving a suspension of payment or a reduced payment, which is implemented and supervised by an insolvency practitioner and binds all creditors.
This is an alternative to the rescue mechanisms where a company is wound up. This involves the appointment of a liquidator who collects in and distributes the company’s assets and dissolves the company.
Whatever steps are taken, there will be a number of commissioning and contractual issues which will arise.
Latest reports suggest the Group may ‘shed’ in the region of 180 of its homes. It appears that any such reduction would be achieved by either the closure of some homes (30 is the reported number), or, in the majority of cases, transfer to alternative providers. In some cases, the landlords such as Four Seasons and Bondcare are care providers who may be willing to take over the running of the homes. In many other cases, new providers may need to be found or residents may need to be transferred to other Southern Cross homes. Whilst this is a national problem, the practical ramifications and solutions will vary depending upon local issues.
Local authorities and PCTs need to have contingency plans in place. Commissioners should:
In the event that there is insufficient capacity in terms of alternative placements, commissioners may be able to take on responsibility for running the homes themselves. In such instances, local authorities would need to consider:
Commissioners will need to review existing contracts to understand their contractual obligations in the light of any insolvency arrangements. Factors commissioning authorities might consider, for instance, in the event of an administration include:
* In relation to local authority funded residents, Southern Cross has its own duties under the Human Rights Act
Our in-depth knowledge of the sector coupled with our insolvency and regulatory experience means that we are well placed to advise on the implications of any insolvency arrangements or commissioning issues relating to any proposed cessation and/or disposal of Southern Cross’ services.