Former chief inspector of social services Lord Laming has told a health minister he needs to take the threat to one of the country's biggest private home care providers more seriously.
The independent crossbencher said that vulnerable people dependent on services provided by Allied Healthcare were "living under the shadow" that the company could collapse and that "nothing could be more anxiety-provoking".
He challenged government frontbencher Lord O'Shaughnessy after the minister sought to reassure peers that there was a legal duty on local authorities to ensure continuity of care if a business were to fail.
The exchange came during a question in the Lords after Allied Healthcare, which cares for 13,500 patients annually, confirmed it was seeking a rescue plan, known as a company voluntary arrangement (CVA).
Struggling companies try to agree a CVA with creditors in a step to revive their fortunes while paying off debts - something the firm said would "not impact on the safe continuity of care".
Allied has insisted that it "remains business as usual" and there will be no redundancies or closures as a result of the CVA implementation.
The provider offers a range of services including end-of-life care, as well as home care visits for the elderly and those recovering from injury, or individuals with learning disabilities.
Health Minister Lord O'Shaughnessy said: "The law is clear that if services may be disrupted due to business failure the Care Quality Commission (CQC) will notify local authorities so that they can put appropriate contingency plans in place.
"In respect of Allied Healthcare, no such notification has been made to date.
"The public should be reassured that the Care Quality Commission have been and will continue to monitor the situation at Allied Healthcare closely."
But Lord Laming said: "Imagine being a very vulnerable person living in a residential home with no alternative to go to, or dependent on a home help to do the basics of daily living and living under the shadow that the company that provides this service is actually going to go out of business at any time.
"Nothing could be more anxiety-provoking for these residents.
"And the Care Quality Commission telling the local authority there's a problem here, that is no comfort and I hope the minister takes this question rather more seriously."
Lord O'Shaughnessy insisted he took the issue "very seriously".
He said: "The reassurance is in law. That local authorities need to step in to provide that continuity of care with notice from the CQC, which now has a new responsibility to monitor the financial sustainability of these providers, and to make sure whether they deliver that in-house or through contracts with other providers, that that care is provided."
Pointing out this reassurance did not exist prior to a law change in 2014, the minister said: "That is something that has been introduced and that ought to provide a degree of reassurance among what I accept is of course among vulnerable people, who will be anxious, but that responsibility is there in law."
The situation facing Allied Healthcare had been raised by opposition frontbencher Baroness Wheeler.
She said: "The CVA means Allied Healthcare has four weeks to come to an arrangement with its creditors.
"Its closure would have serious consequences for the continuity of care and safety of its 13,500 clients, including many vulnerable older people and people with learning difficulties and for its 8,700 staff."
Given the pressures on local authorities, she added: "What reassurances can the minister give that councils will be able to discharge their statutory duty if Allied Healthcare collapses?"
Lord O'Shaughnessy pointed out the Local Government Association had said councils had "robust" plans in place to ensure continuity of care if needed.
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