Bad Debts in aged care - What do you do? - etouches Debts in aged care - What do you do? Presented by: Alison Choy Flannigan Partner, Health, aged care and life sciences (02) 9390

Bad Debts in aged care -

What do you do?

Presented by:

Alison Choy Flannigan Partner, Health, aged care and life sciences

(02) 9390 8338

[email protected]

Nicholas Heinecke Special Counsel, Health, aged care and life sciences

(02) 9390 8352

[email protected]

22 June 2016

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Introduction

Resident/client debt management

Commercial debt management

Contracts and engagement terms

Providing security

Solvency

Debt recovery

Introduction

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Enforceable contracts – capacity

Contracting – ensuring that payment obligations are clear Residential Aged Care: Resident Agreement

Home care: Home Care Agreement

Retirement Living: Retirement Village Contract and Disclosure Statements and lease/licence as relevant

Resident/client debt management

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Residents Agreement - A resident agreement must be expressed in plain language and be readily understandable by the care recipient

Refundable Accommodation Deposits (RADs) and Daily Accommodation Payment (DAPS) Pre 1 July 2014 residents (with unchanged arrangements) can roll over

accommodation bonds unless they choose to opt in to new arrangements

Residential Aged Care

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It’s all in the timing – the importance of the admission process Ensure that the contract is signed and payment arrangements are in

place (to the extent possible under law) before the resident moves in

A resident has 28 days from the date that they enter into the facility to decide how to pay for their accommodation. If they decide to pay a RAD, they have 6 months to pay. If they make a decision after those 28 days to pay a RAD, it is due when agreed between the provider and the resident. A resident must pay a DAP unit the RAD is paid.

The Service Provider cannot request a resident to pay a DAP more than one month in advance.

Residential aged Care

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Securities Ways to assist with recovering payments Refundable accommodation deposits (RADs)

Pre-payment (permissible)

Authority to deduct regular payments from bank accounts

Access to pension payments

Bank guarantee or pre-payment of security or security such as a caveat or mortgage over real property (including real property to be sold)

Clauses which deal with late payment or clauses encouraging early payment (subject to regulated fee requirements)

Government subsidy – to an extent the government subsidy manages the risk, however, ensure that all your assessments and paper work re the resident/client and compliance is up to date and regularly reviewed

It’s all in the timing – the importance of the admission process Ensure that the contract is signed and payment arrangements are in

place before the commencement of the service/resident moves in

Residential aged care

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What happens if they don’t pay?

Security of tenure User Rights Principles

When an Approved Provider may ask or require a care recipient to leave residential care services – includes when the Care Recipient has not paid any agreed fee to the approved provider within 42 days after the day when it is payable, for a reason within the care recipient’s control

The approved provider must not take action or make the care recipient leave the residential care service, or imply that the care recipient must leave the service, before suitable alternative accommodation is available

Must follow the notice requirements

Residential aged care

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Home Care Agreements Must include a clear itemised statement of fees (if any) payable by the

care recipient and how those fees are calculated

What happens if they don’t pay?

Security of tenure The approved provider may cease to provide home care to the care

recipient only if the care recipient has not met his or her responsibilities as described in the ‘Charter of care recipients’ rights and responsibilities – home care set out in Schedule 2 of the User Rights Principles within the care recipient’s control – this includes the responsibility to pay fees as specified in the agreement or to negotiate an alternative arrangement with the provider if any changes occur in his or her financial circumstances

User Rights Principles 2014

Home care

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Retirement Village Contract (NSW Standard Form) Allows for Entry payments and deposits

Sets out fee structure

What happens if they don’t pay?

Security of tenure Generally, the retirement village contract terminates and the right to

occupy terminates on the completion of the sale of the premises.

Section 134 of the Retirement Villages Act 1999 (NSW) – The operator of a retirement village may apply to the Tribunal (NCAT) for an order terminating the residence contract of a resident of the village who breaches any village contract between the resident and the operator.

The Tribunal can only make an order if:

The breach is to justify the termination ; or

Persistent breaches by the resident is such as to justify termination.

Retirement living

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What is a enforceable contract?

Legal entities

Offer

Acceptance

Consideration

Intention to enter into legal relations

Execution – 127 Corporations Act or authorised representative

Note changes to Competition and Consumer Act – contracting with small businesses and unfair contracts

Look out for

Excessive rights to security and encumbrances in supply contracts

Other rights to delay payment by rejection of supplies and raise disputes

Word of advice:

You can negotiate changes to standard contract terms

Contracts and engagement terms

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What are they:

Examples: PPSR

Guarantees

General Security Deeds and Specific Security Deeds (formerly known as Fixed and floating

charges and Fixed charges)

Land interests – mortgages on leases

Securities

PPSR - What is it? In operation since 2011 and replaced a number of State and Federal

registers

A simple and cheap method of registering a security interest

A “security interest” is an interest in personal property that in substance secures payment of a debt or other obligation regardless of the form of the transaction

Interests may be registered on goods, vehicles, registered intellectual property, accounts, shares, livestock - most things other than real property

Can be registered in respect of property of persons, companies, trusts, partnerships, associations, other entities

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Personal Property Security Register

Why register an interest? Create priority

Can give a right to take possession of goods and accounts

Notifies all of the interest in property

PMSIs Purchase money security interests (PMSIs)

How does a PMSI arise

Contracts Take care when signing a standard form contract

Consider including a right to register interests in your contracts

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Personal Property Security Register

Guarantees Director guarantees

Parent company guarantees

Bank guarantees

Land title Caveats

Require the grant of an estate or interest in land

Notify of an interest

Mortgages Mortgages over land and leases

Must be granted by an executed deed

Give priority and can grant a power of sale

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Other options

Solvency Solvent vs insolvent:

“A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable”, section 95A of the Corporations Act 2001 (Cth)

Personal insolvency, is bankruptcy which requires an Act of Bankruptcy to occur and the vesting of the persons property with a trustee.

A bankrupt means a person:

(a) against whose estate a sequestration order has been made; or

(b) who has become a bankrupt by virtue of the presentation of a debtor’s petition.

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Solvency

Make the debt “due and payable” With precise contract terms make a debt (being the agreed sum) due

and payable

In other circumstances, the debtor may need to be put on notice of a breach of contract, by notice demanding precisely when the debt is to be paid

Where the amount of the debt is to be determined, Court proceedings and judgment may be required to quantify the amount owing

Letters of demand Ensure that you have the documentation to support the claim, for

example enforceable contract

Purpose: set a deadline (reasonable) for payment of the debt

Particularise your claim, and reduce the scope for argument and dispute

Demands

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What is statutory demand? Corporations Act 2001 (Cth) section 459E:

(1) A person may serve on a company a demand relating to:

(a) A single debt that the company owes to the person, that is due and payable and whose amount is a least the statutory minimum; or

(b) 2 or more debts that the company owes to the person, that is due and payable and whose amount is a least the statutory minimum.

Consequences of non compliance Deemed insolvency

Standing to apply to the Federal Court or Supreme Court to wind up the debtor company

Creditors Statutory Demands

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Why issue a CSD? Get the attention of the directors

Process is quick (compared to court proceedings to prove a debt and then enforce)

Hard deadline, debtor must within 21 days either: Pay the debt

Secure the debt (to the creditor’s reasonable satisfaction)

Commence proceedings to set aside the demand

What to do if you receive a CSD?

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Creditors Statutory Demands

Institutional debt collectors

Courts Local Courts

Small Claims Division

Judgments CSD (if against a company)

Garnishee orders

Sherriff enforcement

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Other methods of enforcement

Aged Care and Debt Recovery

Questions? [email protected]

[email protected]

The contents of this publication is general in nature and should not be relied upon as legal advice. No reader should act on information contained within the publication without first consulting us.

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