Calls to make agencies involved in care homes more accountable for corporate neglect means IPs could face litigation when things go wrong. Be prepared, says Kathryn James
With the recent case of R (On the application of the Members of the Committee of Care North East Newcastle) v Newcastle City Council  and proposals to hold private companies criminally accountable for neglect and abuse in care homes they own and manage, insolvency practitioners (IPs) acting as administrators of care homes need to be conscious of potential pitfalls in the future.
Plans to make care home owners accountable for neglect and abuse
Liberal Democrat MP Paul Burstow is calling for a change to the Health and Social Care Act 2008 to include a new section under Part 1, Chapter 3, the Quality of Health and Social Care, entitled ‘Corporate Neglect’. In the wake of the Winterbourne View Care scandal, Burstow said: “It’s about time those who take the fees and employ and manage the staff in care homes are held to account for abuse and neglect that takes place on their watch”.
He wants to make corporate bodies guilty of an offence if the way activities are managed by the board or senior management results in, or is a substantial element in, the existence or possibility of abuse or neglect. His proposals envisage offences punished by unlimited fines, remedial orders and publicity orders. Further, those with information about suspected abuse or neglect would be compelled to supply this to the Adult Safeguarding Boards.
Nadra Ahmed, chairman of the National Care Association, disagrees that care home owners alone should be criminally liable. She argues that the proposed changes should go further: “This cannot be about one arm of the problem only,” she says.
“It must cover all agencies involved and address the issue of responsibilities across the board.” Her vision would include the Care Quality Commission, local authorities and primary care trusts being potentially liable.
As agents of a company owning a care home, IPs are likely to face expensive and lengthy litigation if the poor management of the provider led to neglect and abuse of patients prior to the company entering into insolvency procedures. With the IP stepping in to manage the company and the likelihood of disruption to the existing quality of service that any insolvency procedure causes, will we see a wave of claims against IPs where neglect and abuse occurs while the care provider is under their control? Further, will the threat of adverse publicity put IPs off trading a care home and making an orderly shutdown more attractive when those residents in the care home are at their most vulnerable?
Regardless of the extent of the change, it seems IPs may well be lumbered with the litigation and investigation of those companies they are managing, which seems inevitable with the likely tightening of care provider regulation. It would be sensible to consider the extent to which an IP’s insurance policy would cover such claims prior to appointment.
R (On the application of the Members of the Committee of Care North East Newcastle) v Newcastle City Council 
An unincorporated association representing various care home providers in the Newcastle area asked the court to consider whether Newcastle City Council had acted fairly when setting the rates that it would pay for care home placements. The council decided on 26 March 2012 to fix the rates payable to care providers for the financial year 2012/13. Further, if providers declined to agree the new rates by 30 April 2012, the council decided it would refuse to make any new placements with those providers.
The claimant challenged the council’s decision on four grounds, and the court considered the first two of these together:
- The council’s failure to inform itself of the actual costs to care home providers
- The council’s irrational behaviour in failing to take into account relevant considerations when setting the rates
- The council’s failure to consult with care home providers
- The council’s unlawful behaviour in imposing discounts on providers at less than the ‘usual rate’ and refusing to make placements with providers who refused to agree the discount.
Firstly, the court found that although the council had sought to establish the true cost of care using a Fair Costs of Care report published by PricewaterhouseCoopers LLP, it had made controversial assumptions and populated the report in a misleading way. Further, the council had wrongly given the impression to its decision-makers that the majority of providers found the proposed rates acceptable and that they would enable a sustainable market to continue. The court therefore found in favour of the claimants.
On the third ground, the court held that the views of the care providers were not accurately reported to the council’s decision-makers and the consultation process was not a genuine one.
Finally, the court found again in the claimant’s favour in relation to the fourth ground and held that the council had abused its dominant position.
The claimant therefore succeeded on all four grounds of challenge, and Judge Gosnell ordered that the council’s decision of 26 March 2012 be quashed.
This case reinforces the established position that proper consideration must be given to the costs of providing care when setting the rates for care providers and it highlights the need for local authorities to conduct a genuine consultation rather than merely paying lip service to consultation.
In order to maximise fees from local authorities or to minimise any proposed reduction in fees, IPs should be prepared to set out in full the actual costs of care to the local authority. Nobody expects care to be provided at a loss and therefore IPs should not be afraid to include the profit element in the information provided to the local authorities.
Boyes Turner is the British Legal Awards – UK Regional Law Firm of the Year It has won this award two out of the last three years and been shortlisted for Law Firm of the Year seven years in a row.
Kathryn James is a member of the International Law Association and insolvency trade body R3. She is one of the Thames Valley’s most recognisable insolvency lawyers; Chambers Guide to the Legal Profession 2013 described her as “an associate to watch”.
Her recent work includes the administration of eight care homes in the North East, the sale of a care home in the East Midlands with a parent company in the Isle of Man for £1.8m, and the insolvency of a group of care homes in North Wales which included administration, Law of Property Act Receivership and the bankruptcy of the directors.
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