Rescue, Recovery, and Closure Options for Care Homes

The social care sector faces numerous challenges, with no signs of improvement. Staff shortages, rising operational costs, and a drop in occupancy rates due to tight family budgets and fewer Local Authority referrals are significant issues. 

Compliance with evolving regulations and maintaining high levels of care further strain care home providers, risking pushing them to breaking point.


How does a liquidated company help you to close your care home?

If you manage a care home and have faced tough times recently, you might be thinking about putting your business into liquidation. Voluntary liquidation is carried out through a formal insolvency procedure called Creditors’ Voluntary Liquidation (CVL). It is a process initiated by the director, leading to the conclusion of an insolvent company.

Before proceeding with liquidation, any company must consult with a licensed insolvency practitioner to determine if it’s the right course of action. However, liquidating a care home, which serves some of society’s most vulnerable individuals, requires even greater care and consideration.

Liquidating a care home affects not only the company’s directors and creditors but also the lives and living arrangements of numerous elderly or unwell residents. 

Your insolvency practitioner will guide you through the entire liquidation process, clarifying its implications for you, your staff, and the residents.

If your care home faces financial challenges but you’re eager to explore whether the business can be revitalised, we can examine all available options to minimise disruption to your care home and its residents.


Exploring effective options to rescue a care home 

If your care home is experiencing a temporary setback, there are several avenues for your company to recover from financial difficulties. Liquidation is not the only option available, despite the current challenges.

If your company has fallen behind in meeting obligations to creditors, including HMRC, engaging in negotiations with them could alleviate the monthly financial burden. This provides an opportunity to restore healthy cash flow levels.

Negotiating with creditors can be done informally or formally, depending on your relationship with them, the owed amount, and whether you’re already in arrears. Your approach will vary accordingly.

Care homes indebted to HMRC can explore entering into a Time to Pay (TTP) arrangement. This option allows companies additional time and space to settle tax arrears, as the name suggests.

If you have numerous creditors, a Time to Pay (TTP) arrangement, which only addresses debts owed to HMRC, may not suffice. In such cases, we can consider various formal insolvency processes such as placing the company into administration or implementing a legally binding payment plan with outstanding creditors.

Formal creditor negotiation like this is conducted through a Company Voluntary Arrangement (CVA). A CVA usually spans 3-5 years, allowing the indebted company to make monthly repayments towards outstanding debts at a reduced rate compared to previous payments.

In certain cases, debt that cannot be fully repaid will be forgiven at the end of the agreement, provided the company has followed the plan and made the agreed payments punctually and in full each month.

A licensed insolvency practitioner will administer and oversee a CVA throughout its duration. The company will make its monthly contribution directly to the insolvency practitioner, who will then distribute it among creditors proportionately.

While a CVA might appear to reduce your care home’s outgoings, you can only engage in one if your care home is deemed viable by both the insolvency practitioner and your company’s creditors. 

If your care home faces more severe challenges and your creditors have become hostile, placing it into administration may be necessary for its rescue.

Once your care home enters administration, it gains legal protection via a moratorium, shielding the company from legal pursuit and preventing creditors from winding up the business, at least while it remains in administration.

Many people overlook the fact that administration isn’t a standalone solution; rather, it serves as a holding stage while a path forward is determined. While administration can aid in rescuing a struggling business, entering administration doesn’t guarantee a positive outcome for the company.

The appointed insolvency practitioner, acting as the company’s administrator, will evaluate your care home and its future prospects as part of the administration process. They will then advise you on whether the care home can be revitalised.


Redundancy guidance for directors owning care homes

If your care home is registered as a limited company, it’s likely that besides being the director, you are also considered an employee of the business. If the care home becomes insolvent and enters a formal liquidation process like a CVL, you may be eligible to claim redundancy.

Your eligibility and the amount you might be entitled to claim will depend on various factors, such as your length of employment at the care home, your age, your salary, and whether you are on the PAYE payroll.

During a period when your business faces liquidation, coping with personal financial concerns can be overwhelming. A redundancy payment could serve as a significant lifeline during this time. In addition to redundancy, you may also be eligible to claim additional statutory entitlements, such as unpaid wages, holiday pay, and arrears of pay.

During the liquidation process, your appointed insolvency practitioner can direct you to a fully regulated claims management firm. This firm can assist in determining your entitlement to claim.