Background

The bank refused a request from a borrower – a residential care home – to provide additional financial support. As a result, the borrower stopped cooperating with the bank removing all IT and records from the home, and absconded.

Following the breakdown of this relationship, FRP were appointed by the bank to assist. On our appointment the borrowers gave staff misinformation as to our aims and objectives, which created an initial period of uncertainty for staff, family members, the local authority and the Care Quality Commission (CQC). As a result, the local authority had little confidence that we would be able to continue to trade the business as a going concern, and began to assess residents with a view to relocating them to other local homes. Our first valuation however, indicated that the home was worthy of investment and development.

Action

This was a hostile, without notice, fixed charged receivership (FCR) appointment, following the borrower’s decision to relinquish their control of the care home. An FCR has limited powers and there is a higher degree of risk in trading a care home business in receivership (as opposed to as administrators).

As a result of the borrowers’ actions, the bank had no financial or performance visibility with which we could work. Neither the Registered Manager nor the staff were aware of any financial difficulties, and were therefore extremely concerned regarding their job security, and at first hesitant to accept our position as receivers.

At the date of our appointment, the home had limited occupancy, a poor CQC rating, insufficient staff numbers, and a poor reputation with the local authority. There had been no financial investment in the building for several years, and it had no alternative use(s). As a result, we had to quickly engage with the Registered Manager, staff, resident families, local authority and CQC, to convince them that the bank was supportive of a trading period while investment was made in the home, and a turnaround was achieved.

Valuation and compliance advice confirmed our opening evaluation that the home was worthy of investment and development. Based on commitments we secured from the local authority, we were able to make calculated improvements to the environment, staff training, resident facilities, and the property.

Outcome

Our actions resulted in steady and permanent increases in occupancy, improvements in the resident mix with new private residents, better outcomes for residents (personalised care), and ultimately an improved CQC rating. Following a period of further trading to embed the improvements and increase profitability to a sustainable level, we marketed the business for sale and achieved a better than expected price as a result of a competitive bidding process.