How to liquidate your Care Home
Care homes play a vital role in society, serving an ever-increasing ageing population and providing the support that can’t always be offered at home. The sector is also a significant employer, boosting local economies and creating wider financial stability.
Unfortunately, inadequate funding and a wealth of other challenges make it difficult for some care home businesses to survive. Staff shortages and cash flow issues are just two problems that can negatively affect a home’s ability to operate safely, and seeking professional insolvency advice in this situation is paramount.
When any business enters insolvency the owners and directors need to understand their new obligations and take steps to protect company creditors from unnecessary financial loss.
Knowing that insolvency doesn’t always lead to business closure is also important, however, and can provide motivation to seek assistance. So what are some of the challenges facing the care home sector in Scotland and how can they be managed?
Challenges facing care homes in Scotland
Inadequate funding
Inadequate local authority funding for care homes can lead to a strain on cash and long-term financial decline. In conjunction with increased outgoings, this is a serious threat, especially given the day-to-day requirements of elderly residents.
Soaring cost of food and energy
Providing high quality, nutritious food, and ensuring buildings are heated to the correct temperature are non-negotiable requirements for care homes. These expenditures have soared in recent years and place significant pressure on working capital.
Staff shortages
Staff shortages adversely impact the care home sector, leaving businesses to rely on expensive agency workers to fill the gaps. This additional cost could send a business into insolvency but it’s an impossible cost to avoid.
What does liquidation mean for care home businesses?
A robust insolvency regime exists in the UK that helps businesses to close down according to insolvency law. Liquidation can also be an option for solvent care homes that can pay their bills – if the owners want to retire, for example, and there’s no one to take over.
Creditors’ Voluntary Liquidation (CVL) for insolvent care home businesses
Creditors’ Voluntary Liquidation is a formal process that ensures a care home closes down according to insolvency law. Business assets, such as equipment and buildings, are sold at a liquidation auction and the funds are used to repay creditors.
Members’ Voluntary Liquidation (MVL) for solvent care homes
Members’ Voluntary Liquidation may be suitable for care home owners whose business is solvent. It can be highly tax–efficient for businesses with £25,000 or more in distributable profits. Again, a liquidator is appointed to deal with the company’s assets, and this time the proceeds are distributed to shareholders.
Are there any alternatives to liquidation for Scotland’s care homes?
There may be alternatives to liquidation for Scotland’s care home businesses, depending on how quickly insolvency help is obtained. Company Voluntary Arrangements (CVAs) are just one option and these involve restructuring a company’s debts so they become more affordable.
Many of Scotland’s care homes are struggling to continue due to persistent financial and operational pressures. Scotland Liquidators are here to help with independent professional advice and support whether the business is solvent or insolvent.
