Viewpoint: What happens when trusts go into administration and what it means for CCGs

South London Healthcare NHS Trust is to be put into administration, the government announced this month. Michael Boyd, partner and head of the healthcare group at business law firm DWF, which provides specialist health advice, examines the process, its implications and likely outcome.

Mr Boyd: 'In reality, there are two likely outcomes of the process.'
Mr Boyd: 'In reality, there are two likely outcomes of the process.'

The Trust Special Administration process was introduced for NHS trusts with the aim to preserve the continuity of NHS services which face insolvency. A similar process specifically for NHS foundation trusts was introduced by the Health and Social Care Act 2012.

The installation of a trust special administrator

The South London trust is unsustainable in its current form and, as a result, the health secretary has instigated the this process, appointing a trust special administrator to assume the functions of the chief executive, chairman and directors of the trust.

Once in place, the administrator has been given 75 working days to consult with the relevant parties and compile a draft report recommending the steps to be taken in relation to the trust. The statutory minimum period of 45 days - within which this work must have been carried out - has been extended by the health secretary, to give a more realistic period within which to accomplish, what is generally acknowledged to be, a complicated task.

The need for consultation

When publishing the draft report, the administrator must also issue a statement describing how it will seek responses to the report within a 30 working day period to commence no later than five days following the report’s publication.

The administrator must consult with: staff and their representatives, the NHS Commissioning Board, persons to whom the trust provides services, any person specified by the health secretary, relevant local authorities, and relevant MPs. At least one meeting must be advertised, and held, to hear the views of other interested parties, and the administrator must seek in writing the views of other consultees, with at least one meeting being held with each.

Wrapping up the process

The administrator must provide the final report, and copies of all responses received during the consultation period, to the health secretary within 15 working days of the consultation period’s end.

The health secretary must then decide on what action to take.

But what about other statutory consultation duties and the position of third parties?

Even at the outset of the process, there is a view that meaningful and radical changes will need to be made and that a lengthy consultation process could prejudice further the position of the trust.

However, the need for swift action needs to be balanced against the interests of the wider stakeholders in the local healthcare economy, including patients, who may not feel that a 30 day consultation on what could lead to extensive changes is sufficient.

A key question is whether the requirements avoid the statutory ‘engagement and involvement’ obligations which arise when there are changes to health services.

Although certain aspects of the consultation process are capable of being adjusted to fit the circumstances, it is much more prescriptive in terms of what is required and how it should be carried out.  This seems at odds with the statutory engagement principal, which caters for a broad range of possibilities with the nature of the process - in terms of scope, information and time – being influenced by the subject matter and gravity of the plan, proposal or decision.  As such, depending on the nature of the recommendations in the draft report and the consultation actually carried out, the consultation process may not be sufficient to obviate the need for a separate consultation process.

It is also apparent that many of the problems affecting the trust require solutions, the implementation of which (and their inevitable knock-on effects), will need consensus and support from other providers in the area.  However, these bodies will not be bound by the administrator’s report and, there will have to be a series of complex negotiations, outside the scope of the process, in order to deliver the complete solution.

Likely outcomes of the process

In reality, there are two likely outcomes of the process: the continuation of the trust as a going concern or a solution which involves the acquisition of the trust by a third party, leaving the trust as a shell to be dissolved.

Any liabilities which remain due to the trust’s creditors must be dealt with by the health secretary – whether assigned to another NHS body, for example a foundation trust, or taken on by the health secretary directly. However, where an NHS foundation trust is dissolved, there is no such duty to creditors, leaving them without the level of protection currently enjoyed by creditors of NHS trusts.

The trust’s payment obligations to its private financial initiative (PFI) partners are, in effect, secured, as a result of arrangements that will have been put in place when the deals were signed and so the PFI counterparties have little to be concerned about in relation to the trust undergoing the process.

Some have suggested that the PFI partners should assist the trust in overcoming the difficulties it faces, though the PFI partners are obviously likely to question why they should put themselves on the line. The trust would be better to approach its PFI partners from a position of strength and, in attempting to do this, should review the historic performance of its PFI partners against their obligations, with a view to establishing a contractual lever which could be used to extract concessions, whether financial or otherwise.

  • Michael Boyd is partner and head of the healthcare group at business law firm DWF.

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