20th November 2016

Guest Legal Blog from Harrison Drury


How Care Home owners can manage debt

Investigations by the Observer have revealed an escalating financial crisis in the care home sector.[1] Chai Patel, the chairman of HC-One, one of Britain’s largest care home operators recently stated that half of Britain’s care homes could soon go bust.[2]

There are concerns that the new national living wage and moves to pay transport costs to carers will increase the costs of care. Local authorities have also suffered funding cuts of more than 40% since 2010 and are struggling to offer attractive contracts; therefore many providers are turning to the private sector.

In light of this, solicitors have received numerous queries from care home owners asking how to effectively deal with mounting debts.

If you are a care home owner faced with this problem, you will need to:

·       Work out how much is owed

·       Work out if you have enough money to pay off your debts

·       Contact your creditors and make proposals to pay them back

·       Work out your options if you don’t have sufficient funds to repay the debts

Once you have worked out how much money is owed, it is important to understand that different types of debt can result in different types of enforcement action being taken.

·       Mortgage or rent arrears. Failure to pay these could result in you losing your place of business.

·       Electricity and gas arrears. Failure to pay could result in your care home being disconnected.

·       County Court Judgements (CCJ). Failure to pay a CCJ could result in the creditor instructing bailiffs to seize your property, obtaining a third party debt order (this allows a creditor to take the money you owe them directly from whoever has the money, for example a bank or building society) or securing a charging order over any land or assets that you own. If a charging order is obtained, in order to realise the judgement debt the creditor would have to go on to obtain an order for sale.

·       Income tax or VAT arrears. You can be sent to prison for non-payment of income tax or VAT.

It is also important to be wary of creditors threatening to invoke insolvency proceedings. If you operate as a company and a debt is worth more than £750, then insolvency proceedings or the threat of, via the service of a statutory demand may be served on you. If you operate your business as a sole trader or partnership, the insolvency threshold is £5,000. However the courts tend to discourage the use of insolvency procedures as a debt collection exercise and if the debt is genuinely disputed, then the courts may not only dismiss petitions, but also penalise those bringing them.

It is also important to note that even if you don’t have sufficient funds to pay off your debts, it may still be possible to negotiate a deal with your creditors. For example it may be more cost effective for a creditor to accept a reduction in the amounts owed to them than take action to enforce the debt. Also if there is a lack of money in your business generally, the likelihood of creditors receiving all money owed in the event of them taking enforcement action is likely to be slim. Therefore a negotiated deal may be the most cost effective solution.

If your care home is struggling with mounting debts, you can get advice from a solicitor who specialises in the care home sector, David Edwards. David is head of the healthcare sector team at Harrison Drury solicitors and can be contacted directly on david.edwards@harrison-drury.com or 01772 208 507.

[1] http://www.theguardian.com/society/2015/sep/26/nearly-half-social-care-services-failing-uk-elderly-disabled-welfare
[2] http://www.theguardian.com/society/2015/sep/26/nearly-half-social-care-services-failing-uk-elderly-disabled-welfare

image742ab1  david-edwards-1

Anthony Mayall

Anthony has been in industry for 26 years and in the energy market for over 10 years. He loves to help customers to reduce their costs by getting them a better deal elsewhere.

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