Southern Cross: Care home chain to be broken up, leaving uncertainty for residents

11th July 2011

The company has been struggling for several months. In March is admitted it couldn't pay the rent due to the landlords that own its homes. Lease arrangements with landlords were typically for 25 to 35 years with rent rises each year.

Southern Cross tried to renegotiate the leases with landlords and said it would have to pay a reduced rent while it re-arranged its finances. The group provides residential and nursing care for elderly and vulnerable people and has 31,000 residents in 752 care homes. However, it has been hit hard by government cuts, falling admissions and rising costs.

Controversially, US private equity firm Blackstone bought Southern Cross in 2004 for £162m and sold it three years later for about four times as much. But to achieve this it sold off the company's homes – robbing Southern Cross of its capital – and the company then leased back the homes from other landlords.

But now the landlords concerned have pulled the plug and announced they will be taking back care homes. Last week, Four Seasons announced plans to take control of the 45 care homes it leased to the group. Bondcare, another leading landlord, has announced similar plans.

Altogether new operators have been found for 250 out of the 752 homes.

Landlords of the other 502 homes are said to be finalising their plans.

Southern Cross chief executive Jamie Buchan said that all payments to trade creditors were to be maintained and all home-based staff transferred on their current terms to ensure continuity of care to residents.

"My objective, and that of my team, is to continue to provide excellent care to every resident and to manage the programme of transition professionally," he said in a statement.

Dave Prentis, leader of Unison, says the Government should take urgent action to protect the well-being of the residents in Southern Cross homes.

He said: "This will be a major upheaval and tragedy for people living and working in these homes. It comes as a timely warning to David Cameron about the dangers of his plans to bring in more private companies to run public services."

The firm's collapse also means that shareholders in the company will be wiped out with shareholders receiving little or nothing. Trading in Southern Cross shares has been suspended. They company's shares had already fallen to just 6.25p, having been worth £6 in late 2007.

The Southern Cross saga has made the issue of care for the elderly and infirm a key political issue. Last week the Government published the findings of an investigation into care home funding by economist Andrew Dilnot , who said care costs should be capped by the state at £35,000.

In reforms that would cost the Government about £1.7billion a year, the Commission on Funding of Care and Support also called for the means-tested assets threshold to be increased from £23,250 to £150,000.

Read more:

Long term care: What happened with the last commission?


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