The Federal Government is seeking to set minimum liquidity requirements for residential aged care providers for the first time – dangerous territory for a sector that has finally reached a level of financial and regulatory certainty.
Previously, operators only had to submit a liquidity plan to the Aged Care Quality and Safety Commission (ACQSC) for approval.
As we report in this issue, an ACQSC webinar on the new financial and prudential standards has revealed that the Government is looking to require operators to hold 10% of their Refundable Accommodation Deposits (RADs) and 35% of their quarterly expenses in cash.
Most banks already require operators to hold 10% liquidity as part of their loan arrangements – but the residential aged care sector is also preparing to move to payments in arrears from 1 July 2026, a change which is expected to impact significantly on cash flows.
The Commission states that the measures will ensure providers are financially viable and can meet their obligations when they are due.
But the reality is that most operators just don’t have that level of cash sitting around.
The changes are also due to commence from 1 July 2025 – giving the sector little time to prepare.
Can the sector find $4 billion in four months?
Speaking to Shalain Singh, Managing Director and CEO of Arrow Advisory Group, yesterday, he pointed to three immediate impacts:
Capital
With around $40 billion in RADs in the sector, providers would need to find about $4 billion in cash – fast.
“For many who have been acquiring and or developing new assets, they may have to turn to banks to raise the cash in which case there is added cost and risk for the operator which ironically is the opposite of what the Government wants – assuming of course the operators trying to raise the liquidity lines and or increase them are able to,” he told The Weekly SOURCE.
This could financially cripple operators and stall any acquisition and development activity.
Cash flows
The requirement to hold the equivalent of one month’s operational cash seems like a smart idea – but will place a massive strain on mid-sized and smaller operators.
Valuations
In the short term, valuations may be negatively impacted for operators that are assessed as being unable to comply, Shalain added.
My view: These measures could kill off any new builds or acquisitions – and in the worst case, spark an exodus of smaller operators from the sector.
The Commission is now consulting on the changes until 7 March.
The link to the survey is HERE.
Will the sector stand up and say this is a disaster waiting to happen?
