The Social Care sector and Care Homes and Home Care Agencies in particular has never been more at the forefront of headlines and people's minds than at present.
The Covid-19 pandemic has shone the spotlight on the sector both from a positive perspective – the incredible dedication of those at the front line – and a negative one – the rate of deaths in some Care Homes.
The Scottish Government has included provisions in the Coronavirus (Scotland)(No.2) Act 2020 (which became law on Tuesday) relating to Care Homes and Home Care Agencies including which give Health Boards in Scotland the power to take over the running of Care Homes and even to acquire businesses and assets themselves.
The Act gives wide ranging powers to the Scottish Government, Local Authorities and Health Boards to require action by operators and to actually take over the operation of the business, either temporarily or permanently. Whilst it is hoped that the powers that the Act gives would not be exercised routinely and, in the case of the powers to actually take over and run a Care Home, without just cause (and would only be exercised as a last resort in the case of the power to actually acquire the Care Home or Home Care business) the powers are still there and this will not be viewed with enthusiasm by operators who are already struggling to cope with Covid-19 and under increasing financial pressure.
It should be noted that the powers can only be exercised for reasons related to coronavirus and also that the Act only applies to 30 September 2020 although it can be extended if circumstances require it, initially, to 31 March 2021 and, then, to 30 September 2021.
Putting aside the political aspects to this, "what does the legislation actually say"?
There are three main provisions in the Act relating to Care Homes (one of which also applies to Home Care agencies):-
- giving the Scottish Ministers the right to take over and run Care Home businesses on a temporary basis – referred to as emergency intervention orders;
- giving local authorities and health bodies (including Health Boards) the right to acquire Care Home businesses and to local authorities the right to acquire Home Care businesses;
- giving Health Boards the right to require that a Care Home operator take specified steps in relation to that Care Home.
So what is the detail?
Scottish Ministers the right to take over and run Care Home businesses on a temporary basis.
- Under the Act the Scottish Ministers may apply to court for an emergency intervention order in respect of a care home;
- The emergency intervention order:-
- (a) authorises the Scottish Ministers to nominate a person to act as a nominated officer,
- (b) authorises the nominated officer to
- (i) enter and occupy the accommodation specified in the order,
- (ii) direct and control the provision of the care home service at the accommodation (i.e. essentially run the Care Home), and
- (iii) do anything that the officer considers necessary to ensure that the care home service is provided to an appropriate standard,
- the Care Home operator is required to comply with any direction given by the nominated officer in relation to the provision of care home services at the Care Home;
- The emergency intervention order applies for a period of up to 12 months (the period requires to be specified in the order) but can be extended by further application to the court for a further period of up to 6 months;
- The court must grant the emergency intervention order if it appears to the court that, unless the order is made, for a reason relating to coronavirus there will be a serious risk to the life, health or wellbeing of persons at the accommodation;
- The court may include such incidental provision in an order as it thinks fit (the example given being prohibiting the sale of the accommodation or the disposal of any assets used in the provision of care services at the accommodation);
- The Scottish Ministers may, where satisfied that it is essential do so for a reason relating to coronavirus, to prevent an imminent and serious risk to the life or health of persons at the accommodation, exercise the powers that would be available under an emergency intervention order prior to making an application to the court. If they do so they must make an application to the court within 24 hours of the exercise of the powers;
- The Act provides that on the grant of an emergency intervention order by the court the Scottish Ministers must give a copy of it to the Care Home operator. There is no provision in the Act however requiring that the Scottish Ministers notify the operator that it is making an application for an emergency intervention order. The operator can apply to the Court to have the order varied or revoked.
Right to acquire Care Home and Home Care Businesses or Assets
- Under the Act local authorities are given the right to acquire Care Home and Home Care businesses; Health Boards (plus the Common Services Agency and Healthcare Improvement Scotland) have the right to acquire Care Home businesses (although not Home Care agencies);
- In each case the right is to acquire the business (or the relevant provider itself) or any asset or liability of the business – this includes the property from which the business is carried on;
- The right to acquire is stated to be "by agreement" (presumably as opposed to compulsorily) although "by agreement" is not further defined;
- The right to acquire only applies in three specified circumstances, being that for a reason related to coronavirus:-
- (a) the provider is in serious financial difficulty,
- (b) the local authority or, as the case may be, the health body is satisfied that there is a threat to the life, health or wellbeing of the persons receiving the services (note that, unlike for emergency intervention orders, the threat to life etc. does not have to be "serious"), or
- (c) the provider has recently ceased to provide the services.
- Whilst not the only trigger an operator would be considered to be in serious financial difficulty if it notifies SCSWIS of an insolvency event (administration, winding up etc.) under the relevant regulations;
- Prior to exercising the right on the grounds of a threat to the life, health or wellbeing of the persons receiving the services the local authority or health body requires to consult with other stakeholders including the Care Inspectorate, Health Board and Healthcare Improvement Scotland.
Health Boards right to require that a Care Home operator take specified steps
- Health Boards are given the right to direct that a Care Home operator take specified steps in relation to the operation of a Care Home within the Board's area;
- The right only applies where the Health Board considers that, for a reason relating to coronavirus, there is a material risk to the health of persons at the specified accommodation;
- The specified steps must relate directly to reducing the risk to the health of persons at the specified accommodation (for example, by requiring specified cleaning to take place);
- The Health Board's direction requires to be in writing, detail the required steps to be taken and specify the timescale in which they are to be carried out;
- If the Care Home operator fails to carry out the required steps the Health Board is entitled to step in and carry out the specified steps (or those that remain) and is entitled to recover the costs incurred by it in doing so;
- The Health Board can go to court to force entry if the operator refuses them entry to the Care Home (failure to comply with the court order may threaten the operator's Registration for the Care Home).
- The Act also requires that each Care Home operator reports to the Care Inspectorate every day for each of its Care Homes on:-
- (a) the number of deaths of residents in the care home from coronavirus since the relevant date,
- (b) the number of deaths of residents in the care home, since the relevant date, that are suspected to be attributable to coronavirus,
- (c) the total number of deaths in the care home, since the relevant date, irrespective of whether or not they are attributable to coronavirus.
- The "relevant date" is the day before the relevant provision in the Act comes into force. This is not yet known – it may be the date the Act is passed or a later date to be set by the Scottish Government. It would be hoped that this would be notified to each Care Home operator by the Scottish Government along with details of the format/method of reporting required.
- The Care Inspectorate in turns requires to report to the Scottish Government every 7 days on the total number of deaths in Scotland in these three categories.
Implications for Care Home (and Home Care) Operators
A few obvious observations can be made on the Act:
- For emergency intervention orders, who pays for the steps that the nominated officer requires to be carried out ? Logically it has to be the operator;
- The employees of the Care Home subject to the emergency intervention order presumably remain employed by the Care Home Operator who remains liable for them – what happens if a claim arises in the future as a result of a step that the nominated officer requires to be carried out when they are in effect running the Care Home?
- If, as would be likely to be the case, emergency intervention orders routinely contain provision prohibiting the sale of the accommodation or the disposal of any assets used in the provision of care services at the accommodation, then the business is effectively in limbo whilst the order is in place;
- For the right to acquire Care Home or Home Care businesses or assets what does "by agreement" actually mean – would the operator really have a choice, particularly if this followed on from an emergency intervention order?
- What value would be applied to the business or assets being acquired i.e. to set the price to be paid ? If the acquisition was a Care Home where an emergency intervention order was already in place would the basis of calculation reflect that ? That would inevitably result in a lower valuation;
- The granting of an emergency intervention order may have the undesired effect of putting the operator into "serious financial difficulty" thereby bringing the business within the ambit of the power to the local authority or health body to acquire the business– surely an unintended consequence?
- What impact would all of this have on the operator's funding/relationship with its bank? The grant of an emergency intervention order would be likely to put the operator in breach of its banking covenants either expressly or by implication. Lenders will have concern around the use of these powers – if a Care Home is unable to be sold, it forces a lender to sit on its hands;
- Additionally banking covenants routinely require bank consent to the sale of any property/part of the business – what if the bank won't consent to the sale/agree to release the charges it has over the business/assets being sold;
- Will we probably and should probably see banks introducing additional covenants in to their lending agreements whilst the Act is in force to try and address its measures? (There is also the possibility that the Act may have a negative impact on lending decisions on Care Homes and Home Care businesses whilst the Act is in force, certainly it should be something that credit committees will need to consider and be comfortable with.)
- From a property perspective, what if the operator is the tenant rather than the owner of the property in question. Landlord's consent to the transfer of the Lease to the local authority or health body is almost certainly going to be required – what if the Landlord is reluctant to consent; what if the Tenant is in rent arrears and the Landlord makes it a condition of its consent that the arrears are settled – who would pay in these circumstances?
- What impact will this have on the investment market, both in the short and medium to long term? Whilst for some time there has been a "rush to quality" in the investment market, and this will become more pronounced, it is worth bearing in mind that some Care Homes have been worse affected than others by the Covid-19 pandemic (and not just the older stock) – we are likely to see a business's Covid-19 infection rate as another criteria potential investors will take into account;
- On insolvency, the Act would apply to administrators etc., both those already appointed and in place when the relevant measures under the Act are applied to a particular business e.g. if an emergency intervention order is granted and those appointed after the measures had been taken against the business. The appointment of an administrator may in fact trigger the use of the power to acquire the Care Home or Home Care business by the local authority etc. as this is one of the specified criteria for the power to apply;
- The main point from an insolvency perspective is if an insolvency practitioner is appointed, they have statutory duties to creditors. While it would be assumed that the best outcome for creditors is to ensure that the circumstances that allow the Scottish Ministers or local authorities to take action under the Act don’t arise, often this will be out-with the control of the insolvency practitioner or the insolvency practitioner will have been appointed too late to do anything about it. This may mean insolvency practitioners will be reluctant to take an appointment in the current circumstances, which could limit potential restructuring options for Care Home businesses.
The Act is likely to be in place for a relatively short period of time but may have more long term implications for operators in the already hard pressed social care sector. Some provisions in the legislation are likely to be followed by more detailed guidance although this is unlikely to put many of the operators' fears at rest.
This may of course be seen as the first step of the Scottish Government becoming more actively involved in the Care Home and Home Care sectors and it is probably no coincidence that the Scottish Government Health Minister has also now announced that there should be a review of the provision of social care in Scotland.
At Addleshaw Goddard our Healthcare Team has widespread experience on advising clients – whether operators, funders, investors or developers – across all sub-sectors and on all aspects of healthcare businesses both in Scotland and UK-wide. For further advice, please do get in touch with our Key Contacts below.