Doubling in number of care home firms collapsing into administration

Southern Cross joined by more than 70 smaller companies as care crisis widens

The crisis in social care funding has led to a doubling in the number of care homes going bust, according to a new report.

Accountants Wilkins Kennedy on Monday said the government’s squeeze on social care spending coupled with rising debts and high rents led to 73 care companies entering administration over the year to the end of September, compared with 35 in the previous 12 months.

While the demise of FTSE care home group Southern Cross dominated the headlines this summer a string of smaller companies have collapsed including north Wales-based Southern Care Group, Cheshire’s Winnie Care Group and Stockport’s Grosvenor Care. Argus Care Group, with 500 residents in Scotland, last week became the latest casualty.

Anthony Cork, a partner at Wilkins Kennedy, said: “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 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.”

Cork said the biggest problem for many care home groups was their eagerness to sell their properties and lease them back at ever-increasing rents.

“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.”

Renaissance, the care home company owned by industry veteran and entrepreneur Robert Kilgour, will triple in size on Monday when a deal to take over four former Southern Cross properties is completed.