Press Releases

14 November 2011

Number of care homes going bust doubles over last year

The number of care home businesses going bust has more than doubled over the last year, says Wilkins Kennedy, the Top 21 accountancy firm.

73 care home companies went into administration over the last 12 months to September 30 2011, a 109% jump from 35 in the previous 12 months (to September 30 2010).

Wilkins Kennedy says that an increasing number of care homes struggled with high debt and rent obligations as their income fell due to local authority cutbacks.

Comments Anthony Cork, Partner at Wilkins Kennedy, Restructuring & Recovery: “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. 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.”

Wilkins Kennedy says that, 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.

Anthony Cork explains: “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.”

Wilkins Kennedy says that even care homes that haven’t done a sale and leaseback are feeling the pressure from the public spending cuts.

Comments Anthony Cork: “Care homes are a business with high operational costs. These include, for example, the wages of specialist nurses and carers. This makes them particularly vulnerable to a decrease in funding. Care homes now have to achieve a very high level of efficiency to avoid spiralling downward and ending up in insolvency.”

Recent examples of care homes that became insolvent

• 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.

ENDS

Press Contacts:

Anthony Cork
Partner - Restructuring & Recovery
Wilkins Kennedy
Tel: 020 7403 1877
Mob: 078 8060 1962

Fay Israsena or Nick Mattison
Mattison Public Relations
Tel: 020 7645 3636
Mob: 079 6076 8787