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The social care industry is experiencing a raft of challenges, many of which show no signs of abating. From staff shortages and increasing operational costs, through to a sharp decline in occupancy levels due to a combination of squeezed family budgets and a reduction in Local Authority (LA) referrals, along with ensuring compliance with ever-changing regulatory requirements and adequate levels of care are maintained at all times, has the potential to push some care home providers to breaking point.
If you run a care home and have found the past few years to have been particularly challenging, you may be considering placing your business into liquidation. Voluntary liquidation is done via a formal insolvency method known as a Creditors’ Voluntary Liquidation – or CVL. It is a director-initiated process which brings about the end of an insolvent company.
Before any company enters liquidation, they must seek expert help and advice from a licensed insolvency practitioner to ensure this is an appropriate step for their business. However, when it comes to liquidating a care home - a place which cares for some of the most vulnerable individuals in society - extra caution needs to be exercised.
Liquidating a care home does not just impact the directors of the company and its outstanding creditors, but also the lives and living situation of many elderly or unwell residents. Your insolvency practitioner will be able to talk you through the entire liquidation process, ensuring you know exactly what it means for you, as well as your staff and residents.
If your care home is experiencing financial difficulties, yet you are keen to see whether the business can be turned back around, we can also explore all the options open to you and your business in order to minimize any disruption to your care home and the residents who call it home.
Anthea’s residential care home has a solid reputation for providing quality care and exceptional living conditions for the 45 residents who call it their home.
Over the years, the care homes overheads had steadily increased, and although residents fees had been inflated at intervals in order to compensate for this, it had reached a point where the care home was in danger of losing residents due to the escalating costs to residents and their families.
The care home began to fall behind in its financial commitments, and when the COVID-19 pandemic caused staffing costs to increase further, something had to be done to rebalance the books.
Anthea contacted her local Real Business Rescue insolvency practitioner to better understand her options. It was decided that a CVA was the best option, allowing the business additional time to repay its existing borrowings, while also providing an opportunity for opening up negotiations with the landlord about the current lease. Rent on the building the care home operated from was by far the biggest outlay for the business, and this was a cost which had steadily increased as the years had gone on. It was determined that if this liability could not be reduced, the care home didn’t stand a chance of continuing over the long-term.
Working with Anthea and her landlord, we were able to renegotiate the existing lease agreement, saving the care home vital money throughout the remainder of the 20-year lease. Although the landlord had to take a cut to the quarterly rent being charged, they benefitted by retaining the care home as a tenant, something which would not have happened if the business was forced into liquidation should it have continued to trade at a loss.
Throughout the implantation of the CVA, the care home continued to operate as usual, meaning no disruption to the care provided to residents was experienced.
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Even if you no longer want to continue operating your care home, there may be someone out there keen to buy your business off you and take over running it. This may even be the case if your care home is financially distressed and currently losing money.
The ability to sell your care home will be greatly improved if you can demonstrate previous healthy profit margins, as well as a reputation for providing quality patient care. The desirability and value of your care home business will also be increased if you own key assets such as the building the care home operates from.
Selling you care home could not only allow you to walk away with some money, but it could also be the best outcome for your employees and residents. Selling your care home as a going concern will reduce the disruption caused when you leave the business. If the sale is handled well, a smooth transition between yourself and the new owners could provide reassuring continuity to those associated with the care home including staff, residents, and their families.
Despite this, selling a business – particularly one which is financially distressed – is a tough ask at the best of times, never mind in the midst of a global health and economic crisis. Real Business Rescue has an in-house corporate finance team who can help you through the whole transaction process.
Not only can we ascertain whether your care home is worth selling, but we can also help you obtain an independent valuation, market the business on your behalf, and support you through the entire negotiation and all-important due diligence process. Not only can this help ease the pressure and burden on you, but can also allow you to sell for the best price to a buyer who is not only serious about buying your care home, but is proceedable too.
If we do not believe your business is likely to sell on the open market, our licensed insolvency practitioners can discuss your options for either closing or rescuing the business depending on its financial position and your desire to continue operating.
If, like many care homes up and down the country, your business has hit a temporary rough patch, there could be a number of ways which your company can move from the red and back into the black. Liquidation is far from the only option for your care home despite its current financial problems.
If your company has fallen behind in its obligations to creditors – including HMRC – entering into a process of negotiation with them could help lower the financial burden you are feeling on a monthly basis, giving you the chance to get your cash flow back to healthy levels. Creditor negotiation can be done on an informal or a formal basis, and your approach will likely depend on your existing relationship with your creditors, the amount you owe, and whether or not you have already fallen into arrears.
For those care homes who are indebted to HMRC, one options which can be explored is entering into a Time to Pay (TTP) arrangement. As the name suggests, this arrangement gives a company additional time and space to bring its tax arrears up to date.
If your creditors are numerous, however, a TTP (which just covers money owed to HMRC), may not be enough. In these instances we can look at a range of different formal insolvency processes such as placing the company into administration, or else implementing a legally-binding payment plan with outstanding creditors.
This type of formal creditor negotiation is done through a Company Voluntary Arrangement (CVA). A CVA typically lasts for between 3-5 years, during which time the indebted company is permitted to make monthly repayments towards outstanding debts at a lower rate than what they were previously paying. In some instances, debt which cannot be fully repaid will be written off at the end of the agreement so long as the company has adhered to the plan and made the agreed payments on time and in full each and every month.
A CVA will be administered and supervised by a licensed insolvency practitioner throughout the term of the agreement. The company in question will make their monthly contribution directly to the insolvency practitioner who will then distribute this amongst creditors proportionately.
While a CVA may sound like the perfect way of lessening your care homes outgoings, you will only be able to enter into a CVA if your care home is seen as viable by both the insolvency practitioner and also your company’s creditors. If your care home is experiencing more acute issues and your creditors have turned hostile, it may need to be placed into administration if it is to be saved.
Once your care home is in administration, it is granted certain legal protection through a moratorium which prevents the company from being perused legally and ensures the business cannot be wound up by creditors at least while the company remains in administration.
What many people do not realise is that administration is not a solution in itself; instead it functions more as a holding stage while a route forward is plotted. Administration can help save a struggling business, but going into administration does not always mean that the company will emerge positively. The appointed insolvency practitioner – acting as the company’s administrator – will assess your care home and its future prospects as part of the administration process, before advising you on whether the care home can be turned around.
If your care home is registered as a limited company, there is a good chance that as well as being director of the company, you are also seen as an employee of the business too. In the event of your care home becoming insolvent and having to enter a formal liquidation process such as a CVL, you may be entitled to claim redundancy.
Whether you qualify, and the amount you may be entitled to, will depend on a host of factors including how long you have worked for the care home, your age, your salary, and whether you are on the PAYE payroll.
At a time when your business is in danger of being liquidated, you may also be struggling with personal financial worries, a redundancy payment could be a huge lifeline. As well as redundancy, you may also be entitled to claim for additional statutory entitlements such as unpaid wages, holidays, and arrears of pay.
As part of the liquidation process, your appointed insolvency practitioner will be able to refer you to a fully regulated claims management firm who can help qualify your entitlement to claim.
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