Legal battle heats up between Healthscope and SA hospitals owner
The owner of three major Adelaide hospitals and an in-receivership management services provider are locked in a legal battle, which could see the latter ousted.
Healthscope is fighting a bid by the Adelaide Community Healthcare Alliance (ACHA) to terminate its contract to run the Ashford, Flinders Private and Memorial hospitals.
The company claims its financial troubles do not constitute insolvency or give ACHA the right to strike out their contracts.
ACHA says it does, and has told InDaily that if management of the hospitals was to be returned to the South Australian not-for-profit, more local jobs would be created.
Healthscope, which owns 37 hospitals nationally, placed its parent entities in receivership in May, with McGrathNicol Restructuring appointed conduct an expedited sale process, funded with a new $100m funding package from the Commonwealth Bank.
It does not own the three Adelaide hospitals, but provides management services under contract for ACHA.
Media reports last week suggest that McGrathNicol would receive early offers for Healthscope this week.
ACHA meanwhile filed a Supreme Court action in late May, looking to terminate its agreement with Healthscope to run its hospitals.
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“Upon a manager default (including an insolvency event) occurring, ACHA is entitled to terminate the Hospital Operations Management Agreement (HOMA),’’ ACHA’s claim says.
The claim says that Healthscope had committed an “insolvency event” as set out in their contract.
ACHA says that ANZ Hospitals Pty Ltd – one of the entities in the Healthscope group – “is the borrower under the terms of a syndicated facility agreement, under which a syndicated group of approximately 30 lenders have lent the borrower in excess of $1.5bn’’.
ACHA said on April 8, 2025, Healthscope’s general counsel Richard Holbeach, “had a telephone discussion with Jeremy Schultz, ACHA’s solicitor, during which Mr Holbeach said words to the effect that, ‘Healthscope’ was in default of its obligations to those lenders which did not approve the forbearance agreement and that those obligations were secured’’.
However other correspondence from Healthscope to ACHA stated that Healthscope Operations Pty Ltd “is not in default of its debt obligations. A related entity of Healthscope (ANZ Hospitals) is in technical default, but the senior lenders have given that entity forbearance that they will not call the debt, nor require that entity to pay interest’’.
“By that same email, the Healthscope Group declined to provide the … Securities and Syndicated Facility Agreement to enable ACHA to verify the base assertion that no insolvency event has been committed,’’ ACHA argues.
It also says in its claim that there were media reports suggesting that some members of the syndicate had refused to agree to a “standstill” or forbearance arrangement.
ACHA argues there were a number of ways in which an “insolvency event” occurred, and says it is therefore entitled to terminate the HOMA.
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The hospitals owner is asking the Court to declare that Healthscope has been involved in an insolvency event and ACHA is therefore entitled to terminate the HOMA.
For its part, Healthscope denies that in the case of a “manager default” ACHA is even entitled to terminate the agreement.
It says ACHA’s rights in such a scenario are more limited than ACHA argues, and that various steps would need to be taken in the interim.
“(Healthscope) denies that it has committed an ‘insolvency event’ as that term is defined in the HOMA … or that an insolvency event’ has occurred in relation to Healthscope Operations,’’ the company argues.
Healthscope says that in May a “forbearance” agreement was entered into over the relevant debts, and “the effect of the matters pleaded … is that the general security deed has not become enforceable within the meaning … of the definition of ‘insolvency event’ in the HOMA”.
Healthscope is denying ACHA is entitled to the relief sought, being the termination of the agreement.
ACHA has responded to the Healthscope defence, saying the company retained “the common law right to terminate for fundamental breach’’, which it argues did happen.
ACHA chief executive Paul Evans told InDaily that, “ACHA owns the ACHA Hospitals, and all associated equipment, it employs 100 per cent of its 2500-plus staff, with no Healthscope employees working in the ACHA Hospitals’’.
“Healthscope’s only involvement is that it provides some management services with respect to the ACHA Hospitals. Additional jobs in SA would be created if ACHA took on the daily operational management role at its three hospital sites.’’
Evans said the ACHA management team would take on all of the ongoing operational management of the three hospitals sites if Healthscope needed to replaced in servicing this role.
“Whatever happens to Healthscope, ACHA, will continue to own and operate ACHA hospitals,’’ he said.
“The sites will continue to operate as usual, delivering high-quality care to South Australians.’’
The matter is listed for a three day trial on September 22, unless the matter is resolved via mediation sooner.
