1 June 2011 Last updated at 13:26 ET

Southern Cross: Government tries to reassure residents

Jamie Buchan, CEO of Southern Cross: "We are seeking to inject new capital into the company"

The government has pledged to ensure "effective protection" is in place for residents of the UK's biggest care home provider, Southern Cross.

Fears have been growing for the future of the loss-making company, which said this week it would have to reduce the rent it pays its landlords.

The government said it was closely monitoring efforts to resolve the company's financial problems.

Southern Cross told the BBC it was confident a solution would be found.

"I don't see the prospect of the company going under," said chief executive Jamie Buchan. "We are seeking to inject new capital in the business... as part of the wider restructuring negotiations which are under way."

Mr Buchan said the care given to its 31,000 residents would not be affected as those discussions continued over the coming weeks and months.

The prime minister's spokesman said the government was monitoring the situation carefully and said the Department of Health had been in contact with Southern Cross for some time.

And Care Services Minister Paul Burstow said: "It is for Southern Cross, its landlords and those with a stake in the business to put in place a plan to put the company on a firm footing. That is what they are doing."

But shadow health minister Emily Thornberry said the situation was "very serious" and the government should be doing more.

"We are talking about the most vulnerable, and the government has a responsibility to ensure that there is a plan B if Southern Cross can't look after itself," she said.

A care providers' association said there was a good chance that Southern Cross could be restructured and there was no need for mass closures.

"Underneath the current difficulties, because councils are continuing to buy care from Southern Cross, there's a viable business that can in some way be structured," said president of the Association of Directors of Adult Social Services, Peter Hay.

His members are directors of social services at local authorities in England and include those who buy care from Southern Cross.

He told the BBC Radio 4 Today programme: "We will work with all parties - landlords, Southern Cross and others - to try and build a sustainable, viable business from this for the future."

'High and dry'

Darlington-based Southern Cross recently reported half-year losses of £311m and warned that it was in "critical financial condition".

Southern Cross looks after 31,000 residents across 750 homes

In the case of a care home closing, local authorities are obliged to find an alternative place for a resident whose place is publicly funded.

But someone who funds their own care would only be entitled to information to help them find another home.

The government said closing a home typically takes between four and six months, so there would be ample time to ensure no one loses out financially.

The prime minister's official spokesman indicated that local authorities might try to keep existing homes running.

"It may well not be in the interests of residents to move them," he said.

"But I think we have to look at that very carefully and we have got to let this process continue with the company and the various other interested parties."

Groups representing residents and their families say there is not enough protection for them if care homes go bust.

"Homes close on a regular basis for one reason or another, and we're very concerned that they have the same status in law as a corner shop that gives up, and people are left high and dry," said Judy Downey, from the Relatives and Residents Association charity.

But despite those worries, Health Select Committee chairman Stephen Dorrell MP said the government should not consider a banks-style bail-out of the company.

"It doesn't seem to me that it's the taxpayers' job to fund the losses that have been suffered by the people who have invested in Southern Cross. That was their risk and it's their loss," Mr Dorrell told the BBC.

'Critical mass'

Southern Cross said on Tuesday that it would defer 30% of its rent for four months while it tried to resolve its financial difficulties.

It also reiterated its belief that a longer-term solution to its troubles would be "forthcoming".

The firm said it was confident "a critical mass of landlords" would support the move. However, there has been no official agreement.

The rent deferral runs from 1 June to 30 September. Southern Cross said it would issue an update in July.

Company chairman Christopher Fisher said: "We believe that all of the key stakeholders in Southern Cross want this restructuring to succeed.

"The objective will be to emerge with a stable and sustainable business model for the continuing care of our residents."

But financial consultant Paul Saper, who has analysed the private care sector, told the BBC: "They can make a decision themselves not to pay the rent, but their landlords don't have to turn round and say: 'We accept that'.

"That's not going to happen, because these landlords also have responsibility to their shareholders.

"I anticipate, over the next week or two, landlords will start to take back their homes. And why should they not do so?"