Liquidation advice for care homes

What happens if a care home is insolvent?

Care home insolvencies have increased by 30% year-on-year, showing the financial headwinds many providers now face. The truth is that care homes are crumbling under the pressure of increasing costs across almost every area, and this is not sustainable given the thin margins many businesses in the sector operate on. 

If you are worried about the financial position of your care home, you should seek professional advice immediately. Our licensed insolvency practitioners can help you understand your position and explain the options available to you. If the business is still viable, there are company rescue options that could get your business back on track. On the other hand, if your business is already insolvent and no longer profitable, liquidation could be in the best interests of the company, your creditors and you as a director.

Why are care homes struggling?

Care homes are facing wider economic pressure that is driving up costs and causing failure rates to soar. Many care homes are heavily leveraged, with interest rate rises pushing up the cost of loans and mortgages. Inflation is also forcing up food and energy costs, with energy bills, in particular, being a leading cause of concern. 

There’s also a critical shortage of staff in the sector, with care homes increasingly having to rely on agency staff who cost two or three times more. Add the fact that local authority expenditure on adult care consistently lags behind inflation and it’s clear why some care homes are at breaking point.

Liquidating your care home business

Liquidation is the last resort for any company director, but if your care home is insolvent (it cannot afford to pay its bills when they become due) and has no realistic prospect of making a recovery, it’s usually in the best interests of everyone involved.

When your business becomes insolvent, it is your legal duty as a company director to put the interests of your creditors first. Usually, that means ceasing trading to prevent you from accumulating further debts. However, knowing when the company has become insolvent can be difficult, which is why seeking early professional advice is essential.

Creditors’ Voluntary Liquidation for care homes

If your business is insolvent and no longer financially viable, a Creditors’ Voluntary Liquidation (CVL) is likely to be the best approach. It will protect your creditors from further losses and reduce the risk of severe consequences for you personally.

The first step is to appoint a licensed insolvency practitioner who will act as the liquidator. They will deal with the creditors’ claims, sell the business’s assets and use the proceeds to repay the creditors as much as possible. They’ll then close the business and any remaining debts will be written off. 

One of the key benefits of a Creditors’ Voluntary Liquidation is that company directors may be eligible to claim statutory director’s redundancy pay. Payouts average around £10,000 and can help to support you while you consider your next step.

Rescuing your care home business

If your care home is struggling financially, liquidation is not your only option. If your business model is sound, there may be steps you can take to rescue your business. Raising emergency funding could provide a quick cash injection so you can pay your debts and get back on track. Alternatively, we may be able to renegotiate your existing debts with your creditors. An HMRC Time to Pay Arrangement is one way to do that. 

There are also formal insolvency procedures we can use. We can propose a Company Voluntary Arrangement (CVA) to your creditors. If they agree, you will be able to continue trading while you repay your creditors over a typical period of two to five years. Company Administration is another option. An administrator will be appointed to explore the possibility of restructuring the business or even selling it as a going concern.  

Need advice?

Contact our team for a free, same-day consultation. We will outline the options available and provide guidance to help you rescue or liquidate your care home. We can also advise you on whether you’ll be eligible for director redundancy pay.