Care homes and coronavirus: a corporate Q&A
The Care Quality Commission (CQC) published its first coronavirus (COVID-19) insight report on 19 May 2020.
The report contains some interesting findings and states that 36% of all care homes have been affected in some form by COVID-19, but there is significant regional variation. To date, the South West at 26% has experienced the lowest percentage of outbreaks, with the South East figure being at 35%. The report also indicates that, whilst the total number of care homes that have reported an outbreak is still growing, there is a clear slowdown from the height of the pandemic during March and April. Whilst this is very welcome news, and we very much hope that the trend continues, providers continue to face many challenges, not least in relation to testing, PPE supplies, new infection control measures, as well as staff retention and welfare.
In these difficult times, there has been much commentary regarding the impact of the Coronavirus Act 2020, the CQC’s emergency support framework (including in relation to the usual inspections being replaced by telephone calls) and the new Care Act ‘easements’ in relation to the duties of local authorities. We thought it would be helpful to share some of the critical questions our healthcare business experts have recently been asked and the answers.
I’ve heard the government has suspended the rules concerning ‘wrongful trading’. Do directors need to worry about personal liability for continuing to trade whilst insolvent during the pandemic?
Whilst the legislation relating to wrongful trading has been suspended, this does not provide directors with blanket immunity from the risk of personal liability. Where a company is insolvent, or of dubious solvency, the directors’ duties to the company are considered (by a court) with reference to the company’s creditors, not its shareholders. Directors must continue to act in a way that promotes or protects the creditors’ interests. Breaching this duty can still potentially lead to personal liability. Any decision to continue trading while a company is insolvent, or of dubious solvency, must be taken with these considerations in mind.
It is therefore important to speak to professionals as early as possible. This should help you avoid placing the relevant business or company and/or its board at risk. It also gives the professionals the best opportunity to rescue the company or business.
The company is required to hold board meetings and or general meetings of the shareholders in the near future. How do we do this if restrictions remain in place?
It would be sensible to check relevant provisions of the company’s articles of association and any shareholders’ agreement. This includes, for example, the number of directors that are required in order for board meetings to be quorate and whether attendance at such meetings can be by telephone/video calls. Consider whether there are provisions allowing alternate directors and proxy voting.
Large-scale physical general meetings are unlikely to be possible in the near future and so alternative arrangements as permitted by the company’s constitutional documents should be considered.
The government has announced that new legislation will be introduced to allow companies greater flexibility in holding AGMs. Potentially, this will allow AGMs to be held online or postponed. However, the legislation has not yet been announced and we await further details.
A shareholder or director of the company has contracted coronavirus. What are the implications if they become seriously ill or even die?
You might consider, for example, reviewing the articles of association and any shareholders’ agreement for provisions that would apply in the event of death and/or serious illness. Consider whether you have an agreement obliging the company to purchase a deceased shareholders’ shares and, if so, how this may be financed. Succession and exit planning remain key considerations.
The deadline by which we need to file our company accounts is this month, but the accounts will not be finalised in time. What should I do?
Companies House recently announced that, from 25 March 2020, it will automatically grant a two month extension to file company accounts (with an extra month after that if a company can demonstrate extreme circumstances).
What can I do to safeguard my existing borrowing arrangements during this period of uncertainty?
You should consider whether you are in breach or are likely to be in the future. For example, covenants requiring a certain level of occupancy and financial covenants. If you have concerns about your ability to meet your obligations, you should speak with your lender as soon as you can. If you require assistance with reviewing or understanding any of the terms, you should obtain input from a suitable professional at the earliest opportunity.
The government, Bank of England and the Financial Conduct Authority are strongly encouraging lenders to maintain and extend lending, support their customers and not let fundamentally sound businesses collapse. You may be able to obtain further credit, such as a Coronavirus Business Interruption Loan and/or an overdraft. The recent introduction of a Future Fund may offer an additional route to raising finance.
What is the latest on winding-up petitions if I cannot afford to pay creditors?
The government has just published the draft legislation which will prevent winding-up petitions being presented in relation to COVID-19 debts. It places a requirement on a creditor to prove that the company’s failure to pay was not caused by the coronavirus pandemic. That is a very high bar and one which, for example, it is likely that landlords will be unable to meet in most cases. This requirement will apply to all petitions presented between 27 April and 30 June (or if later one month after the bill becomes law). It seems likely that it will come into force on 3 June. It will have retrospective effect. We await further details.
Contact a healthcare businesses specialist
If you would like further information on any of the above subjects or have any other questions we can help you with, please get in touch. Our specialist healthcare team has extensive experience within the sector, has completed a number of transactions during the lockdown and is known for excellent service.
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Kirill advises on all stages of the business cycle, including company incorporations and reorganisations, shareholders’ agreements, acquisitions and disposals, fund raisings and regulatory matters.View profile >
Rich is a Partner in Clarke Willmott’s Southampton team. Rich focuses on working with owners of care homes.View profile >
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