You may have seen that Southern Cross Healthcare are in danger of going bankrupt after announcing a huge £311m loss in the six months to March. Southern Cross are a major provider of care homes for the elderly, with several in Birmingham, including one in Acocks Green at 1079 – 1081 Warwick Road (opposite St Mary’s Close).

Southern Cross’s problems stem from the business following a high risk strategy that has failed dramatically. Basically a previous (private equity) owner sold its care homes and then rented them back from their new owners. This meant the old owner was able to take out a huge amount of capital from the business, leaving it with insufficient assets to ride out any downturn in the business. If the business had kept booming all would have been well, but as our banks found out three years ago, basing your business in that assumption is rather foolish. The downturn has now arrived and the business is in great danger of going under.

Clearly, the overriding issue in the current situation is that the protection of the welfare of Southern Cross’s residents. For the time being Southern Cross’s management are fighting for the survival of the company – offering to pay less rent to the owners of its homes and seeking more capital. But, if these efforts fail, the Prime Minister’s pledge last week, that its residents would not lose their care if the company goes under, is both welcome and must be upheld.