The Xeinadin Corporate Recovery team are always looking at the potential sectors which could face financial pressures. We review the legal, economic and practical factors within the UK economy and the news so we can identify what is ‘coming down the track’.
We’ve seen the effects on the UK economy of some big issues over the past years such as Brexit, Covid, increase in energy costs, inflation, and wage costs. This has impacted businesses everywhere, which we have seen in the increase in insolvency procedures. However, some sectors are feeling the pressure much more than others, and residential care homes are facing a tough time for several reasons.
The care sector as a whole has been a regular casualty of economic, societal, and political pressures over the past 40 years in the UK. At times it has been a favoured sector for investment, but it is almost always one of the first sectors to become stressed when it’s time to apply a dose of austerity.
There is also increasing demand, but the cost of delivering the service, whether that is care in the home or in a permanent Commercial residential setting, is under other pressures.
Often considered poorly funded by the government, the care sector struggles to recruit and retain well-qualified staff on modest levels of pay. With job vacancies at an all time high and morale low, there are some 152,000* vacant positions in the sector, which remains high compared to the wider UK economy.
The demand for social care will only continue and the high turnover of staff is a huge issue for residential care homes. With an estimated 390,000* leavers in 2022/23 due to low pay and challenges of the work this is probably the biggest issue that residential care homes need to solve./
Interest rates and energy costs are two key costs of running residential care homes, that can be massively unpredictable and affect both owner-operators and tenant-operators in almost equal measure.
Latterly, energy costs and inflation have driven some previously viable residential settings to the edge of solvency, as they have struggled to maintain service levels and occupancy, whilst hard-pressed employees, residents and their families, and funding authorities have been fighting their own economic battles. Finally, the introduction of a rise in the Statutory Minimum Wage and incidentally concurrent increases in the cost of borrowing, may have delivered a fatal blow to Care businesses that were already struggling to survive.
It is important to appreciate that not all residential care home operators are in financial crisis. Doubtless that all are facing the same challenges in varying degrees, but some will not be as well managed, or have sufficient funding at an affordable level to enable them to thrive in this climate. For the stronger operators this will provide opportunities for growth and acquisition, whilst often smaller, under-capitalised operators are likely to be the targets for acquisition if they slide towards closure or insolvency.
It is highly likely that a great number of smaller, less well capitalized capitalised operators will be carrying a considerable amount of debt and, in our experience, this will include substantial arrears of employee-related taxes owed to HMRC and possibly being repaid through negotiated Time-to-Pay arrangements. We don’t know how representative of the whole industry this may be, but it is likely to be quite significant.
At Xeinadin Corporate Recovery, we have considerable experience of advising and supporting business in the care sector through difficult financial situations. Whether that involves entering into negotiations with key creditors to help arrange repayment plans or assisting in formulating proposals to existing lenders with a view to restructuring debt and risk.
Our A&A colleagues also have phenomenal experience of working with care sector clients throughout the UK and Ireland and together, we can safely help to deliver collaborative support to deal with all opportunities and problems that may arise possibly through accelerated M&A, administration, or in extreme situations, liquidation.
We truly understand the care sector and all the challenges that it can face, and we also understand the regulatory frameworks that can seem to make it a very inflexible industry within which to operate.
Adult social care workforce in England – House of Commons Library (parliament.uk)
