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Media Coverage

Special administration and the National Health Service

2 July 2012
The Lawyer
The announcement last week that the Health Secretary Andrew Lansley is considering appointing a trust special administrator (TSA) in respect of South London Healthcare NHS Trust (SLHT) could be a big step towards a major restructuring of this sector.

As matters currently stand, any such appointment will be under the Health Act 2009. The process and regime for dealing with insolvent health service providers is to be reformed when the relevant provisions of the notorious Health and Social Care Act 2012 come into force, but this is not likely to be in time for SLHT.

Under the 2009 Act, the Secretary of State can order the appointment of a TSA over a NHS Trust or NHS Foundation Trust, if he considers it appropriate in the interests of the health service. The TSA regime is designed to put in place a structure for quick decision-making as to the future of failing trusts and to take the management role out of the hands of the incumbents.

In terms of the key stages, the appointment causes the immediate suspension of the trust's directors and the TSA assumes their functions. There is no guidance on what qualifications the TSA must have, so it remains to be seen who will be chosen. The TSA must consult with prescribed NHS bodies and publish a draft recommendation within 45 days. A 30 day consultation procedure must commence within five days of publication, during which time written responses must be requested and/or meetings held with prescribed persons, including staff of the trust. A final report must be provided within 15 days of the end of the consultation period. The time periods may be extended.

The Secretary of State then has 20 days to decide what action to take, which could include, at one end of the spectrum, dissolution of the trust with or without also transferring the trust's staff, property and liabilities to other NHS bodies. The TSA regime does not import any provisions from the Insolvency Act 1986, which sets out the regimes applying generally to companies and individuals.

When the 2012 Act comes into force, the regulator (Monitor), not the Secretary of State, will have the power to appoint and then only if the trust/company is, or is likely to become, unable to pay its debts. The TSA regime is retained with some modification, and health special administrators (HSA) are introduced for companies providing essential, but as yet undefined, NHS services.

Under the 2012 Act the objective of the HSA is to secure the continuation of the provision of services. The HSA, in common with administrators appointed over ordinary trading companies, must also try to rescue or sell the company as a going concern, and if it is consistent with that objective, protect the interests of the company's creditors. The HSA will be appointed by application to court and must be an insolvency practitioner. Further regulations "may" apply parts of the Insolvency Act 1986.

In a speech last September, Lansley said that he "would not flinch" from taking action if trusts are failing financially, so is this likely to an isolated incident? SHLT received a £79.2 million bailout last year. It was the largest single bailout, but not the only one. The total bailouts paid to NHS hospitals in 2011/2012 was £414 million, up from £223m in 2010/2011.

The NHS's annual report for 2011/2012 reveals 11 trusts whose deficits are considered by the NHS to be material. Six of the trusts (including SLHT - which reported a £65 million deficit for 2011-2012) were identified as financially "challenged", which suggests that where SLHT goes, others may well follow.

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