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Care home crisis intensifies as failures double 14 November 2011

In total, 73 care home companies failed during the time period, up from just 35 in the previous period.

Anthony Cork, partner at Wilkins Kennedy Restructuring & Recovery, said the care sector has gone through a long period of expansion during the boom years with many companies taking on large debts to fund growth.

He added: "This worked fine as long as local Government funding kept increasing, but with the recession and the cutbacks that ensued, many care homes found themselves unable to service their debts.

"In a growing economy, they could have sold their property assets for redevelopment to reduce their debt levels, but this wasn’t an option because there are no buyers in the current market."

Stuggle intensifies

The business advisory group said an increasing number of care homes struggled with high debt and rent obligations as their income fell due to local authority cutbacks.

Cork added: "Some care homes did a ‘sale and leaseback’ to free some cash to fund expansion plans; this means that they sold their property assets and took them back, generally on a long term lease of up to 30 years, often with a guaranteed annual upward rents review.

"Cares homes that used a ‘sale and leaseback’ are now faced with rent increases that are far above market rates. This has led to a major cashflow squeeze when local authority funding stated to decline. Southern Cross is one example of how this could be fatal."

Case studies:

Southern Care Group – The North Wales-based care home firm went into administration in October 2010. It employed 270 people and cared for up to 300 elderly people at the time.

The Winnie Care Group – The Cheshire-based group employed more than 250 people when it went into administration in April 2011. Eight care homes that were put up for sale as a result.

Grosvenor Care - A Stockport care home operator employing 150 people and operating four care homes when it went into administration in July 2011.

Ascot Care Homes Holdings Limited - The company operated 122 registered beds across owns five fully-managed care homes in Scotland and West Yorkshire before going into administration in December 2010.

By Joe McGrath

 

 

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