Aged Care

By James Daniel

INTRODUCTION

By way of introduction, I am a lawyer presently acting for an aged care provider that owns and controls two large, aged care businesses worth millions of dollars. It has been suggested to me by other experienced advisors that aged care providers would benefit from my insights and experience.

Without wishing to be comprehensive initially (which would be a distraction to you), there are three key issues I wish to bring to your attention that ought to command your immediate action:

1. A governance upgrade.
2. Liquidity issues that need to be successfully addressed to avoid a liquidity meltdown.
3. Consequences that could shake an aged care provider board member personally to their core.

Because of the Royal Commission into the aged care industry and the recent proposed legislative toughening up of the law as it applies to the aged care industry, the above three matters are of immediate and utmost concern for aged care providers especially those who are local community-based operators, of which they are many scattered all around regional Queensland, who lack the economies of scale the bigger branded national multi site aged care providers.

More generally, I have over the last 3 and a half decades of my legal practice advised those who own, control or who have exposures to large businesses either company side or stakeholder side performing as a partner of the bigger branded national multi site law firms.

In particular, I handle the initiation or defence of complex litigation, dispute resolution, insolvency, restructuring, investigations, corporate governance and risk management often in hostile, tense or crisis circumstances.

I advise boards and senior management at all stages of the business cycle by drawing on my deep and diverse experience.

1. A GOVERNANCE UPGRADE.

Approved aged care providers:

• with a governing body of > 5 members; and
• which provide aged care to >40 care recipients

MUST KNOW AS FOLLOWS:

• The law in relation to their governance has been rocked to its foundations
• It is no longer good enough to compose your boards with a majority of community representatives
• Local accountants and lawyers perhaps even many pharmacists and doctors won’t pass the test

Approved aged care providers MUST:

• ensure their governing body (i.e. usually the directors on its Board) are mostly made up of:
  • independent members:
    • who are not executives; and
    • that have the mix of skills and experience to deliver safe and high-quality care; and
  • at least one member must have experience in providing clinical care.
• ·set up and continue a quality care advisory body.

2. LIQUIDITY ISSUES THAT NEED TO BE SUCCESSFULLY ADDRESSED TO AVOID A LQUIDITY MELTDOWN.

An aged care provider must always have access to enough cash to meet its financial obligations. This is known as liquidity.

It must meet the Liquidity Standard if it’s an approved provider holding at least one refundable deposit.

The Liquidity Standard requires an approved provider to:

• be able to repay refundable deposits due in the next 12 months; and
• start, maintain and document a written liquidity management strategy (LMS).
•  

Its LMS must specify:

• the minimum level of liquidity (in whole dollars) it needs to be able to repay refundable deposits when they’re due;
• the factors it considered in choosing this level; and
• what format it will maintain this level of liquidity in.

One solution where liquidity is becoming hard to achieve and the future, could or is about to become dire, is to engage in what is called Safe Harbour protection. Broadly, it possibly offers the following liquidity solution, importantly prior to any breach of the liquidity requirement.

• The safe harbour is a pro-business mechanism that helps aged care providers stay afloat by giving directors protection from prosecution for insolvent trading while they work on a restructure. This means that aged care providers may even become insolvent but continue to trade, take out loans, and make changes aimed to restructure and revive the aged care provider, rather than immediately writing it off as a failure and instigating a formal appointment of a liquidator or voluntary administrator. It recognises the need for aged care providers to be given a ‘second chance’ to try a different approach and address their profitability.

• The safe harbour is the only carve-out to the duty of company directors of aged care providers to cease trading when an aged provider is insolvent. The safe harbour from insolvent trading as it was introduced in September of 2017 represents a significant watering down of the insolvent trading prohibition and is an alternative to a formal appointment of a voluntary administrator or liquidator.

• Under section 588GA of the Corporations Act the substantial requirements to obtain safe harbour protection include starting to “develop” a course of action for a turnaround to be incorporated into the LMS, meeting a threshold of filing tax returns on time, and paying all employee’s entitlements in full.

3. CONSEQUENCES SHAKE AN AGED CARE PROVIDER BOARD MEMBER PERSONALLY TO THEIR CORE.

Loss of licence

In cases of serious non-compliance (i.e. where the risk to consumers is severe, or where a provider has failed to remedy non-compliance, or the provider is no longer suitable to provide aged care) the Regulator may respond by revoking accreditation of an aged care provider or revoking an aged care provider’s approval to provide aged care. This level of regulation reflects a complete lack of trust in the aged care provider’s suitability to provide aged care.

Ban

A banning order can be given when a person:

• isn’t suitable to be involved with or engaged in aged care;
• didn’t comply with the code of conduct that applies to them;
• is an immediate or severe risk to the safety, health or well-being of one or more care recipients;
• has at any time been convicted of an indictable offence involving fraud or dishonesty; or
• is an insolvent under administration

Five years in prison

However, the consequences do not end there for board members along with other responsible person(s) of the aged care provider. They may soon have to face the daunting prospect of significant penalties including possible imprisonment and large fines under the proposed new laws for aged care providers. The most serious criminal penalties may include up to five years in prison. These significant changes are intended to make the duty of care to older vulnerable Australians of the highest priority and prevent deaths and serious injury/illness.

Responsible persons

The draft exposure Bill for the new proposed law defines a ‘responsible person´ of an aged care provider under Section 11. A person is a ‘responsible person’ of an aged care provider if they are responsible for executive decisions, have authority or responsibility (or significant influence over) planning, directing or controlling activities.

Death of, or severe injury to, or illness of, a care recipient

When an aged care provider delivers or proposes to deliver funded aged care services, the definition includes any person who is a registered nurse who has responsibility for the overall management of nursing services along with anyone who is responsible for the day-to-day operations of the aged care provider.

While the board and the organisation should seek to fully comply with all provisions of the proposed new law, board members only risk jail time if:

• they as individuals commit a “serious failure” to conduct due diligence to ensure the aged care provider complies with section 120 of the proposed new law; and
• that serious failure results in the death of, or severe injury to, or illness of, a care recipient.

Under section 120 of the proposed new law, an aged care provider must ensure, as far as is “reasonably practicable”, that its conduct does not adversely affect the health and safety of care recipients while delivering their aged care services. Section 121 of the proposed new law gives a non-exhaustive list of due diligence activities board members (and other responsible persons) must perform.

Insurance

From an insurance perspective, a director’s governance risk is mainly addressed by D&O Insurance, designed to protect the personal assets of directors and officers of an aged care provider from claims arising from alleged wrongful acts committed by directors and officers in their capacity as governors of the organisation. Some Management Liability and D&O insurance policies can provide cover for legal costs and fines due to breaches of laws. However, it is worth checking to see how much cover is in place and if there are special exclusions. An aged care provider should take professional advice on insurance coverage when the new aged care legislation is passed into law.

Importantly, insurance in such cases normally obliges the insurer to fund the insured’s defence costs until the insured is adjudged guilty (if that be the outcome).

The above comments are not legal advice. They are designed to bring these key issues to your attention and, if you wish, formally engage me to advise you about your actual circumstances after you brief me about them.