The Royal Commission into Aged Care Quality and Safety (the Commission) was established in October 2018 to enquire into the quality of aged care services provided to Australians. On the first day of hearing, Commissioner Briggs noted “the likely major themes to be addressed include: quality and safety, access and inclusion, young people with a disability, interfaces and transitions, future challenges and opportunities, and how to deliver quality in a sustainable way.”
The Aged Care Financing Authority suggests the aged care sector is one of the fastest growing industries in Australia due to the ageing Australian population and longer life expediencies. Loans from financial institutions make up a significant proportion of capital for residential care providers.1
Issues for lenders involved in the aged care sector
There are a number of issues for lenders to consider.
Value: In September 2018, after the announcement of the Commission, around $500 million was wiped from combined market values of the three largest listed aged-care operators in Australia.2 As the inquiry carries on, the entities within the sector remain vulnerable to bad publicity and reputational damage.
Liabilities: Aged care providers are primarily regulated by the Aged Care Act 1997 (the Act) and the minimum standards set in the Quality of Care Principles 2014. Although the Act excludes a breach of the Principles from giving rise to a claim for breach of statutory duty, a breach may still be an indication that the provider has failed to satisfy its duty of care owed generally to aged care recipients. Negligence actions for duty of care breaches may ultimately result in awards of monetary damages for pain and suffering or medical expenses where the provider is held liable.
Compliance: The Commission’s recommendations are likely to increase compliance standards and associated costs. For example, higher minimum staffing ratios, greater training (especially for dementia patients) and higher qualifications of supervising staff.
Funding: On 11 February 2019 the Prime Minister announced new funding to provide to help older Australians stay in their homes ($282m) and a general subsidy increase ($320m). The general subsidy increase took effect on 20 March 2019 and will amount to a 9.5% increase in the subsidy for residents in residential aged care.
What should lenders to aged care providers do?
In loan agreements, lenders should consider requiring aged care providers who are borrowers and security providers to make representations, warranties and undertakings as to:
- Details of any litigation, administrative proceedings, investigations or complaints that are current, threatened or pending against the provider; and
- Whether the provider is meeting (and will continue into the future to meet) their obligations under the Act and the Quality of Care Principles. This may include requiring the provider to give notice to (or copying) the lender upon, for example:
- filing a report of allegation or suspicion of a reportable assault under section 63-1AA of the Act;
- an imposition of a sanction under the Act; and
- receiving a notice of non-compliance under the Act.
Lenders may also consider asking the provider to provide Annual Prudential Compliance Statements containing the number and value of deposits, bonds and contributions held.
Loan agreements should also be clear about the consequences of providing inaccurate information.
The Commission is undertaking hearings in 2019 and these will continue until December 2019. As with last year’s Banking Royal Commission, the Aged Care Royal Commission has the possibility of causing considerable reputational damage, generating new liabilities and compliance requirements for aged care providers. Lenders will need to watch the hearings carefully to see if their customers in this sector are affected. An interim report is due in October 2019 with a final report no later than 20 April 2020.
This article was written by Christopher Conolly, Partner, Paul Sroka, Partner and Jane Ku, Graduate.
1 Aged Care Funding, p54
2 Australian Financial Review 18 January 2019