spent in this way, then charities should check their existing reserves policies and amend them accordingly.

There has been a lot of publicity given to the financial and business support to be provided by the government, in particular the Coronavirus Job Retention Scheme that introduced the concept of furloughing employees. However, it is difficult to see how the scheme would help care home operators since furloughed staff are not allowed to work, and without the staff the home cannot operate.

However, if furloughing is a possibility for care home owners, it makes sense to use it, since it is a grant and is effectively ‘free’ money and, unlike a Coronavirus Business Interruption Loan Scheme (CBILS) loan, does not have to be repaid. The job retention scheme runs until the end of June 2020.

The latest guidance indicates that it may be extended beyond this date if necessary, though the announcement makes it clear that any decision will need to take account of the “responsible management of the public finances”. Support for the self-employed has been announced and is set at a maximum of £2,500 per month, via a taxable grant of up to 80% of trading profits. The grant is backdated from March and will be paid for three months but may be extended.

A qualifying condition is self- employed trading profits must be less than £50,000 and more than half of the income must come from self- employment. Care home owners whose profits exceed that threshold will therefore receive no help.

The government has also launched the CBILS, where state-backed loans can be made to businesses facing cashflow issues. Eighty per cent of the loan would be guaranteed by the government, with the first 12 months being interest-free. CBILS will cover borrowing up to £5m and are aimed at small to medium-sized enterprises with a turnover of less than £45m.

The business must (a) not have been classed as a ‘business in difficulty’ on 31 December 2019, if applying to borrow £30,000 or more, (b) have a borrowing proposal which the lender would consider viable, were it not for the current pandemic, (c) self-certify that it has been adversely impacted by the coronavirus and (d) be UK based.

The lender has the authority to decide whether to offer finance under CBILS, and lenders will not take personal guarantees of any form for facilities


below £250,000. For facilities above £250,000, personal guarantees may still be required, at a lender’s discretion, but they exclude the Principal Private Residence (PPR), and recoveries under these are capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied.

It also seems that the banks set the pricing, i.e. the interest rates for such loans and there is little detail available at the moment as to the exact terms of CBILS loans. Different lenders may offer different interest rates. There is also a scheme for larger businesses with a turnover exceeding £45m known as Coronavirus Large Business Interruption Loan Scheme (CLBILS).

In addition, the government has relaxed so-called wrongful trading laws. Wrongful trading was introduced by the Insolvency Act 1986 and made it an offence for directors to allow a company to continue trading if the company was insolvent.

Directors found guilty of wrongful trading could also be made liable to contribute personally to the assets of the company. The government’s plan to relax these restrictions would allow staff and suppliers to be paid by businesses without directors fearing that they might be accused of wrongful trading. While this move is laudable, if a business has negligible cashflow then there might not be funds to pay staff or suppliers in any event. The relaxation of the wrongful trading laws might also result in some businesses trading on an insolvent basis for far longer than otherwise might have been the case, which will prejudice some creditors who have not been paid by allowing the amount of debt to increase. It is also likely that, if the financial situation worsens and unemployment takes effect, that hardship will be passed on to care home operators. With household budgets massively stretched, families will perhaps be far less able to afford care home fees and it should

come as no surprise that the number of self-funding residents dwindles.


No one can speculate how long this situation will last. Those care home operators who had already established robust business continuity plans will be the most likely to survive. Although operators may now be tempted to cut overheads by spending less on professional advisors, that could cost them dear.

Now, more than ever, businesses in this sector will need to rely on all members of their professional team including their accountants, lawyers and other consultants.


Tom Lumsden

Tom Lumsden is a partner at CooperBurnett LLP in Tunbridge Wells, specialising in commercial property. He has particular expertise in the sale and purchase of care homes, including acquiring land for care home developments.

Disclaimer:The above article is not intended as legal advice and must not be relied upon as such • May 2020

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