For the second time this year, Orpea is operating under the protection of a court-sanctioned “conciliation procedure”, a light insolvency regime in France, while it renegotiates a multi-billion-euro debt package with a syndicate of the country’s largest banks. The announcement made on October 26 after a two-day share trading suspension by the Paris-listed company, one of the world’s largest operators of nursing homes, may seem remote from these shores. Yet it matters to over 1,500 elderly and dependent residents currently staying at 23 Orpea locations in Ireland, where it is now the industry leader.

The group has warned that it may breach its existing debt covenants by the end of this year, blaming “the highly inflationary economic environment and the consequences of the strategic and financial review,” which is now expected to result in the presentation of a “transformation plan” on November 15. Orpea has already warned investors that it will include impairments of €2.1 billion to €2.5 billion across property and intangible assets. The group has also acknowledged that disposals agreed under a previous refinance deal in June were not on track.

Orpea’s new group chief executive Laurent Guillot, who was appointed in July, last month unveiled the new senior management team tasked with the “reconstruction” of the group: “I am counting on the commitment of Pierre Krolak-Salmon and Fanny Barbier to focus on the care pathway for our residents and patients and the quality of support and development for our employees, one of the main drivers of this transformation. The company’s financial soundness, its reputation, and a completely revamped real estate strategy are all challenges that will be met by Laurent Lemaire, Frédérique Raoult, and Géry Robert-Ambroix.”

The revamped team includes regional chief executives, with Belgian national Geert Uytterschaut overseeing Northern Europe including Ireland. Uytterschaut is not a new name to Orpea’s Irish business, having represented the group on the boards of all companies it has acquired here since 2020.

The reason Guillot has pledged to “reconstruct” and “transform” Orpea with new senior executives is that their predecessors were fired in a chain of events threatening the very existence of the group, which cares for over a quarter of a million people in 22 countries with its 72,000 employees. The new CEO has now openly questioned Orpea’s past break-neck international expansion, which casts a cloud over the future of its Irish presence.

“We have taken many decisions to restore good practices throughout the company, in a spirit of ‘zero tolerance’,” Guillot said in a statement a few days ago. “This has already led us to dismiss managers and employees who have behaved unethically, to implement reinforced control measures and to take an active approach to transparency, particularly financial transparency, in order to provide an accurate and sincere picture of Orpea’s situation.”

This two-part investigation across France and Ireland reveals how the nursing homes giant got itself into this situation, and what it means for the business it recently expanded so aggressively in this country.

*****

Orpea’s difficulties began on January 26 with the publication of the book Les fossoyeurs (The Gravediggers) by investigative journalist Victor Castanet, following a preview in Le Monde newspaper. The book (available only in French so far) is a 400-page indictment of the group’s nursing homes and private hospitals operations in France.

Castanet’s work draws from multiple sources inside and around Orpea, including named whistleblowers, anonymous staff, relatives of residents, and government agencies, as well as extensive official and leaked documentation. His work painstakingly pieces together Orpea’s behind-the-scenes practices, alleging a web of links connecting senior company figures, financial management, regulatory breaches and, ultimately, dire consequences for the group’s residents, patients, and employees. The book includes uncomfortable individual stories of elderly customers who suffered alleged ill-treatment or died in disputed circumstances.

Castanet’s investigation boiled down to an alleged business model where Orpea packed French nursing homes with the highest possible number of residents – including some who may not be suited to particular locations – while cutting costs below the required minimum in multiple areas. This, according to the book, was made possible by altering payroll data to deploy a smaller number of staff in reality than contracted and budgeted for with government authorities; by allocating strict food budgets that did not allow for sufficient nutrition; and by securing end-of-year rebates from suppliers.

Castanet detailed how these alleged practices fell between the cracks of the complex French funding system for nursing home care. His book, confirmed by a subsequent government report, explains that residents themselves pay an accommodation fee covering their room and food; local authorities pay for daily care costs, such as equipment and supplies as well as care assistants’ salaries; and the government’s health budget pays for residents’ medical expenses, including doctors and nurses. 

Castanet explained that French nursing homes are not allowed to make a profit on the taxpayer-funded portion of these costs. They receive a contractual annual subsidy from local authorities and the health administration, but they must then present accounting documents confirming that the money was effectively spent on the agreed salaries and supplies. By moving staff around contracts and homes, or receiving multi-million-euro end-of-year rebates from suppliers, the book alleges that Orpea created a gap between the costs reported by its homes and the expenses they effectively supported – and pocketed the difference.

In one particularly disturbing example, multiple sources and documents are quoted to indicate that the supplier of incontinence pads and nappies to Orpea’s French homes refunded 28 per cent of the face value paid for the products, which allegedly resulted in limited supplies, lower quality and untold discomfort for residents.

“It’s ultra-advanced just-in-time management.”

Orpea nursing home manager quoted in Les Fossoyeurs

In addition, Castanet uncovered evidence that Orpea had organised and controlled an internal trade union to replace more vocal staff representatives and his book alleges that the group committed fraud during the election of those representatives.

The book includes testimony from the managers of nursing homes saying they experienced intense pressure from the policies rolled out by Orpea. “Every morning, I must fill in a dashboard before 10am with my occupancy rate, the numbers in hospital…” Castanet quoted the head of a home near Paris as saying. “This feeds into all of the group’s departments: procurement, food, pharmacy and HR. It’s ultra-advanced just-in-time management. It’s very clever – if you want to achieve massive savings, that’s the way to do it.” 

The book quotes several former Orpea nursing home managers who said their decisions were governed by obligations to achieve certain occupancy and operating profit targets. They alleged this included automated constraints on the amount of supplies they could order through the group’s IT system depending on financial performance, and mandatory sign-off by a regional director to hire new staff. “The obsession is not with residents but with numbers,” one of them told Castanet.

Heads rolling within days

On January 24, when Le Monde published a preview of Castanet’s book, Orpea issued a statement rejecting the allegations as “false, outrageous and prejudicial” and threatened legal action. The tone of its response, however, was about to change dramatically. To this date, the company has not sued Castanet.

Two days later, with the book published in full, Orpea’s directors appointed Grant Thornton and Alvarez & Marsal to investigate its allegations, which they “treat[ed] with the utmost seriousness”. Another 48 hours and they had fired Orpea’s group chief executive Yves Le Masne. By then, the French government had launched its own investigation.

Five weeks later, the 15-strong team of inspectors from the social services and finance administrations came back with a damning 500-page report. They found that, over a sample period in 2019, 11 per cent of Orpea’s French nursing homes had exceeded their authorised capacity. This was facilitated by “a strongly centralised organisation and management practices that may lead to irregularities”. Individual nursing home managers were confirmed to have very little ability to make decisions, while they were offered up to €6,000 in annual bonuses decided by a “dominant weighting in favour of financial indicators (revenue, payroll costs, operational margin)”. 

Inspectors also found Orpea systematically “put in reserve” around one month’s worth of annual medical subsidies and subsequently allocated most of it to “non-compliant expenses or surpluses”. They added that accounting discrepancies showed €50.2 million worth of ineligible expenses funded by medical subsidies between 2017 and 2020, while millions in unspent subsidies were not declared to the authorities as mandated.

The government investigation confirmed that suppliers were paying end-of-year rebates to Orpea, “contributing €13 to €18 million to the group’s profit-and-loss accounts from public funds initially intended to cover care and medical expenses in nursing homes during the period 2017-2020”.

“The group’s HR optimisation strategy results in a proportion of management personnel that is not always sufficient to guarantee the well-being and adequate treatment of residents.”

Government investigators

Inspectors then turned their attention to payroll data and found “a very significant proportion of irregularities in employment contracts in each nursing home visited”. This included many staff completing tasks above their pay grade. “The group’s HR optimisation strategy results in a proportion of management personnel that is not always sufficient to guarantee the well-being and adequate treatment of residents,” the report concluded, detailing a cascade of resulting “weaknesses in the organisation of care, insufficient human resources and insufficient participation by residents”.

There were “specific weaknesses in the nutrition area”, with quantities served “significantly below reference levels for protein foods (up to 42 per cent for meat)”. Over half of the residents at Orpea nursing homes were found to be moderately or severely malnourished. On the painful issue of incontinence pads, inspectors wrote that “there was no systematic rationing of protections identified, but rather localised misuse”.

The audit Orpea had commissioned from Grant Thornton and Alvarez & Marsal (GTAM) then landed in two parts, published in April and June. The reports essentially confirmed the facts established by the government investigation, while stopping short of attributing any of the shortcomings to organised company policies. 

Payroll examinations found that staffing misreporting had resulted in tens of millions of euros’ worth of personnel costs being charged to ineligible state subsidies, but GTAM “has not found any evidence to confirm the existence of a systematic desire to over-declare workforce”.

The audit of purchases from suppliers Bastide and Hartmann, named in the book, confirmed that “Orpéa benefits from discounts from these two suppliers whose products and services are partly financed by public funding”. Aside from cash end-of-year rebates, “Bastide pays third parties directly for services benefiting Orpéa, such as internal Orpéa seminars, marketing services (theatre boxes and sports events) and IT projects,” GTAM found.

Regarding the mandatory reporting of costs against subsidies, GTAM audited just one nursing home and didn’t find “any falsification mechanism on occupancy rates or non-staff expenses,” but noted “weaknesses” in the reporting and could not rule it out elsewhere.

When surpluses emerged from unspent subsidies, “no mechanism has been established by the Group to ensure… the absorption of surpluses corresponding to the unused portion of this funding in accordance with authorised practices,” GTAM concluded. One of the factors auditors identified in the accumulation of unspent subsidies was the “management of the performance and objectives of the nursing home directors and the regional directors, which is focused on optimising both the operating margin and the payroll”.

In one corporate area touched upon in the book – the remuneration of outside intermediaries for some nursing home acquisitions – the GTAM report in fact expanded on Castanet’s findings, uncovering a number of multi-million-euro offshore transactions involving such intermediaries and former senior executives including ousted CEO Le Masne.

Auditors also examined allegations of rationing. “No rationing of incontinence protections was reported in the nursing homes visited; however, it was reported to us in five out of 32 locations visited that the budget was insufficient, which could create indirect tensions on available stocks,” they wrote. Meanwhile, they confirmed that the budget available to chefs to feed residents was around €4 per day on average. “The daily food cost, whatever its euro amount, may not prove rationing or insufficient coverage of the resident’s nutritional needs,” GTAM commented.

The auditors also confirmed multiple occurrences of Orpea nursing homes recording more residents than their authorised capacity and recurrent understaffing, which they linked to a policy driven from headquarters to reduce payroll costs while individual nursing home managers had limited autonomy in making staffing decisions. This also left many employees deprived of their entitlements, such as payment for overtime work, GTAM added.

In addition to these parallel investigations, politicians, too, grabbed the issues raised in the book. Orpea executives and Castanet found themselves quizzed for hours at lengthy parliamentary hearings, which in turn fed further media coverage.

A €55.8m subsidy clawback

The consequences of these revelations for Orpea reach beyond an image crisis. Most directly, in August, the French government clawed back €55.8 million in subsidies mislaid by the group. “Orpea will reimburse the amounts that were inappropriately recorded,” the company said in a statement, though it hinted at “differences of assessment” as to what was exactly due back.

There is no guarantee that this is the end of it. Orpea itself has booked an €83.2 million provision directly linked to the irregularities uncovered by government investigators, and it has acknowledged that the case is now under investigation by public prosecutors.

This is just one of the court battles now facing the group, which has initiated legal proceedings against former executives linked to offshore transactions with unofficial intermediaries. As early as March 2021, its offices had been searched and some employees questioned by police investigating what the group described last year as “the sale of a retirement home to Orpea in France in 2008 and more specifically to the tax treatment of this sale by the sellers, who were not part of the group”. It now appears that suspicious M&A deals had more internal ramifications than previously thought. 

“All the elements relating to these acts have been and will continue to be brought to the attention of the Public Prosecutor, further to the complaint already filed by the company in April 2022, and in a nominative manner when appropriate,” Guillot said in last week’s update.

“This agreement in principle with the banks is a response to the current period of uncertainty affecting Orpea.”

Company filing

More crucially for its balance sheet, Orpea, which carries a growing debt pile of nearly €10 billion, faced a credit crunch. In May, the group struck a refinancing deal with its banks and had it approved by other creditors before a Paris court the following month.

The description of the transaction in the group’s annual accounts explains: “This agreement in principle with the banks is a response to the current period of uncertainty affecting Orpea, as well as to closed-off access to financial markets and the initially anticipated slowdown of the real estate asset disposal programme, and will notably enable it to meet significant debt servicing obligations in 2022 (approximately €813 million due in the second half of the year) and in 2023 (approximately €1,004 million due).”

The €1.7 billion in fresh finance from a syndicate of France’s six largest banks will fall due between next year and 2025, and it came at a price. First, the interest rate – Euribor +3.9 per cent on the immediate facility, and Euribor +5 per cent if Orpea chooses to raise another €1.5 billion in additional refinance running until 2026. These rates are exorbitant for a business seen until now as a safe cash cow, in a country where the cost of debt has been historically low. By comparison, the group reported its average borrowing cost last year at 2.2 per cent.

The second layer of costs added to Orpea’s refinancing deal is that it has promised its lenders to dispose of “operating and real estate assets”. The property sell-off alone must gross €1 billion by the end of 2023, and another €500 million in each of 2024 and 2025. Meanwhile, the first €1.2 billion from the sale of operating assets must go towards repaying Orpea’s bank loans.

The sell-off began at the end of July, when Orpea announced the disposal of 32 Dutch properties run as small-scale nursing homes by a third-party operator for €125 million.

The group must also maintain a €300 million cash reserve at all times. On paper, this looks easy as Orpea had €1.1 billion in cash at the end of June. But this position had been dependent on strong cash conversion from high operating margins, and they have taken a hit. 

“Orpea expects the decline in the financial performance of its activities experienced in H1 2022 compared with H1 2021 to continue into the second half of the year.”

Company filing

Half-year results show that Orpea’s revenue grew by 11 per cent to €2.3 billion in the first six months of 2022 as it continued to open over 1,500 new beds worldwide. But its flagship metric of profitability, Ebitdar (earnings before immobilisation, tax, depreciation, amortisation and rents) fell to 18.5 per cent, from 24.9 per cent last year. For the past decade, it had mostly stayed between 26 and 28 per cent, dropping below 25 per cent only as a result of Covid-19. 

Orpea has been battling to restore occupancy rates since pandemic restrictions slowed down the arrival of new residents. In addition, it is now reporting the twin effects of reduced Covid-19 exceptional state supports worldwide and increased energy and labour costs, which “the increase in the group’s occupancy rate was not sufficient to counterbalance”. While occupancy has been recovering across the group since March 2021, it has fallen back in France this year following the publication of Castanet’s book.

While the group’s Ebitdar has taken a hit, the impact on operating profit after property costs is starker. Orpea’s recurring operating margin was 3.6 per cent in the first half of this year, down from 11.1 per cent in the same period last year. The outlook is not much brighter: “Orpea expects the decline in the financial performance of its activities experienced in H1 2022 compared with H1 2021 to continue into the second half of the year and considers it may be amplified by additional volatility observed recently in energy markets,” the group warned in its half-year release. “In this context, and depending on the recovery of the occupancy rate, EBITDAR margin in H2 2022 could be lower than the level seen in H1 2022.”

The release of Orpea’s half-year results last month triggered a drop of over 20 per cent in its share price. This is just the latest step in a run on the stock that has seen it lose 90 per cent of its value since the publication of Castanet’s investigation triggered a temporary trading suspension on the Paris stock exchange on January 24. 

From a stock market darling fuelling a seemingly unstoppable acquisition spree with unlimited low-cost credit from some of Europe’s largest banks, Orpea has turned into a target for speculative investors, forced to sell off multi-billion-euro assets and to re-appoint its entire senior management team. Apart from the list of top executives unveiled this month, the group also has a new chairman, Guillaume Pépy, the former head of France’s national railways.

*****

To get a better understanding of the state of Orpea today, and how the multiple regulatory breaches detected in France may affect its business elsewhere in Europe including Ireland, I travelled to Paris to meet the author of the book who started it all, Victor Castanet. We met in a cafe in the up-and-coming Belleville neighbourhood on a warm afternoon in early September.

Thomas Hubert (TH): Did your investigation show whether the practices identified in the book may have extended outside of France within the group – whether you had evidence and documents, or general policies that appeared to apply to the entire group at the international level?

Victor Castanet (VC): The main points I demonstrated in the book were, first, cost-optimisation practices that were extremely blunt, such as rationing. In France, the daily meal cost, which means what they spent on food per person each day, was between €4.20 and €4.50 depending on the home, i.e. around €1 per meal. Those were the cost-optimisation practices. (...) 

Then there was the capture of public funds through the use of end-of-year rebates on healthcare supplies, as I recounted in the book, and the deployment of a smaller number of healthcare staff than declared, budgeted and paid for by state authorities. Situations of ill-treatment resulted from this system because inevitably, when you ration food and healthcare supplies, add end-of-year rebates and cut staff numbers, tragedies occur. 

Then there was a whole issue around labour law management, with an in-house trade union called Arc-en-Ciel operating in France and very strong union discrimination against a number of organisations including CGT to control the workforce and contain pay demands.  

What I unveiled in France and the resulting ill-treatment may obviously have happened in other countries, including in Europe. In Belgium, I collected testimonies and evidence showing recurring under-staffing amid the same cost-optimisation policies.

This policy was set by the group’s headquarters in Puteaux. The former chief executive, Yves Le Masne, had indeed established an impressive reporting system that trickled data up to the head office and allowed him to monitor each accounting item almost in real time. He could do this in France, in Europe and throughout the world. From that point on, he had a database covering around 1,100 locations in all countries and could act very quickly to control costs.

What happened did happen in other European countries and had consequences there. There were tragedies, protests by healthcare staff, and ill-treatment that were covered by the media in Spain, as I recounted in the book, in Belgium, where there were severe protests, and just last week in Austria the ombudsman revealed serious incidents at several Orpea locations. Each time, the consequences result from the same causes: the rationing of healthcare supplies and cuts to staffing. 

In Germany, a number of witnesses and an organisation sent me data showing the consequences of Orpea’s establishment in the country. Orpea arrived in Germany, bought a large group and within the first few years, the number of staff went down. The first policy of the group is to cut staff numbers. Orpea then acquired another private group in Germany and went a lot further in cutting medical and healthcare assistants’ staff numbers. Orpea’s debt increases, especially as a result of property acquisitions, and it has this debt burden carried by reduced staff numbers. I was able to document this in Germany. (...)

“During the first few years, Orpea is very careful about its image.”

Victor Castanet

Depending on each country and the availability of public funding, Orpea may then introduce policies to capture that public funding – here, in a non-compliant way. In France, this was possible not only because there were public subsidies, but also because there were very few checks. Other countries have public subsidies but check them fairly efficiently, they’re careful.

Also, during the first few years, Orpea is very careful about its image. Its financial plans allow for the fact that for the first few years in a country, its Ebitdar margin, which can hit 28 or 30 per cent in some locations, will remain much lower at first in those countries where the group is in a development phase. These lower margins are supported by other group locations, including in France. After arriving in a new country, its approach is softer, but again, this depends on checks and balances. If checks are inefficient, it may implement its end-of-year rebates policy. This would be worth investigating. 

TH: Did the end-of-year rebates documented in your book cover international deliveries or just France?

VC: I cannot share all the details, but I had many pieces of evidence documenting the end-of-year rebates in France. What is also significant is that Orpea has developed a procurement office that used to be in France and is now in Switzerland. It was designed to purchase supplies for all locations in Europe. It would be interesting to know if there were end-of-year rebates paid to this Swiss-based procurement office. 

TH: Regarding the capture of public funds, the book explains that this is made easier when they are paid as flat fees. The nursing homes receive a given amount, they do not have to show invoices and then claim costs – instead, they are allocated a given subsidy for a number of residents in a certain condition. This seems close to the Irish system. Have you documented issues in other countries that use such flat fees? Were those practices organised on a wider scale than France?

VC: I cannot say, but all countries where subsidies and flat fees are available offer opportunities for capture. In France, even though there were end-of-year rebates, the health authorities did request invoices. The nursing home had effectively paid those invoices – for example, it received a €10,000 subsidy to buy nappies and submitted an invoice showing that the supplier had received that €10,000. Except the supplier paid back part of this money – not to the home, but to the head office. This was not visible to the authorities, or they did not look hard enough. (...)

TH: Looking at what has happened this year since the publication of your book, there have been a number of investigations – one by the health and financial authorities, and one commissioned from Grant Thornton and Alvarez & Marsel by Orpea itself. Overall, they have confirmed many of the problems identified in the book, but they said there was no rationing. How do you regard the outcomes of these investigations and how they interact with your book?

VC: The book led to a number of investigations designed to confirm or deny what I had reported. The first report came from inspectors in social services and the department of finance and, honestly, it confirmed each of my points: on the capture of public funds; on the in-house trade union managed by the group; on the fact that the food budget did not allow sufficient protein intake for residents, etc. The social services and finance inspectors never said there was no rationing policy – they said they could not prove there was a rationing policy, which is totally different.

I met those inspectors and they had a limited amount of time to do this work. They did a serious job – I did it over three years, they had a couple of weeks. They were able to confirm some of the things in the book but for others, they simply did not have the time. Then it’s a matter the definition you choose. When the daily food budget is €4.20 or €4.50 – I have it in documents – chefs tell me that on this budget, they cannot appropriately feed each resident. For example, every evening, they had to weigh every ingredient. They could not serve a full burger and had to cut it in half. You ended up with a 13-stone adult having less than a full burger to eat. This is called rationing.

On this point, the social services and finance inspectors confirmed that the food records they obtained from chefs did not provide for sufficient protein intake. This confirms rationing. If your food budget results in a lack of protein, this is rationing. They did say they did not have time to prove it.

Meanwhile, Grant Thornton et al. only confirmed what the social services and finance inspectors had found. They met me and claimed to be independent. An authority paid by the group it is investigating is not independent. If I had done this investigation while being paid by the group, I would not have been independent. They are not. They published what they could publish, confirmed what was already confirmed and did not contribute anything new. They used the fact that the rationing policy had not been proven to say that there was no rationing policy, which are two different things. 

But, to conclude on this, 98 per cent of what was in the book was confirmed. This is good for me, but also for all the sources who took the risk of contributing testimonies. Moreover, we have all the evidence and have never faced any legal action. If they wanted to challenge something, they could.

TH: There has been a lot of change at senior management level. Before Covid-19 – and included in the period covered by the book – founder Dr [Jean-Claude] Marian sold his shares. Then chief operations officer Jean-Claude Brdenk and chief executive Yves Le Masne left following the book’s publication. They were identified as the drivers of those policies in many meetings recounted by the sources of the book. Does it seem to you that those changes at the head of the group can make a difference in the way it is managed? Can you measure that impact?

VC: These three leaders were not the only ones affected. In the following weeks, almost all the senior executives were fired, including some for serious misconduct. (...)

You should also know that the new management team has taken legal action against the old one (...) for embezzlement of corporate assets. The reason is that they realised that, as well as all those practices, which were unfortunately confirmed, a large part of the former management team had established patterns that can be qualified as fraud, whereby they created a number of companies that were contractors to Orpea in Luxembourg, Morocco, Italy – and money flowed out of the group. They were either directors of those companies, held interests in them, or their loved ones did. As a result, the new management team has taken legal action against the old one. 

“They are familiar with industrial processes, while we are talking about managing human beings.”

Victor Castanet

So, a large section of the senior management team has left and new people have arrived. There is a new chief executive, Laurent Guillot, and a new chairman, Guillaume Pépy. Without change at the head of the management team, you could not expect a change in business practices. But nothing proves that the new management team will question the whole of what was done previously.

On certain practices, I think the game is over. I don’t think they will ever charge end-of-year rebates again, they know they are now under surveillance and won’t dare to do it again. I think on trade union laws and the fraud that took place during the election of employee representatives, this will not happen again and trade union discrimination will not be repeated. Some of these particularly egregious practices will change. 

Then on cost optimisation policies, such as the €4.20 daily food budget, questions remain as to what will happen in the coming weeks. Guillot, Pépy and others come from industry and companies like Saint Gobain. They are familiar with industrial processes, while we are talking about managing human beings. For some people, “industrialisation” is not a bad word, but I think it was one of the factors leading to ill-treatment in those nursing homes. This all remains to be seen.

TH: Has the network of sources you built up during your investigation reported change? Do people who still work there tell you how things have evolved over the past year and if any have changed?

VC: Some things have changed. Again, I know they have stopped end-of-year rebates. Yesterday, the latest elections of employee representatives were annulled following the revelations in the book. They did not appeal this ruling and said that industrial relations would now change in the group. However, I know there are still dysfunctional nursing homes in the Orpea group. An article was published on the recent serious situation in Austria. A few days ago, severe malfunctions were reported in a French nursing home. I understand two families announced yesterday they were launching legal action over ill-treatments and, I think, one death. Some of those situations have not been resolved.

Another fundamental issue they will have to solve is that they now have an even bigger recruitment problem than they had previously. It is a systemic problem in the industry, but it is also due to their own poor attractiveness. When you’ve had policies, as I documented in the book, to capture public funds and exert severe pressure on staff by cutting their numbers compared to what was budgeted for, while they lacked resources because suppliers had to pay end-of-year rebates, it is not surprising that they are now having trouble recruiting.

TH: Another group of stakeholders in this is the shareholders. This is a listed company, managed by executives on behalf of its shareholders. Have any groups of shareholders contacted you? Have investors followed up on the publication of the book?

VC: Some of them published an open letter at one point, seeking deeper change among executives and the board for a true renewal of the management team. Some of them wanted stronger, faster change among the leadership because they understood that the shock in France was such that they couldn’t get away with denial or without signalling new practices. I know this happened.

I do, however, think that heavy responsibility rests on those shareholders, especially on their board representatives. They tell us today that they didn’t know and we can only believe them. But in that case, what purpose do they serve? At a minimum, they have an oversight obligation. I think not only that they are responsible for having seen nothing for years, but also that once the facts were established, they should all have resigned to show their disagreement with those practices and their demand for change. It didn’t happen. I think the management team shoulders some responsibility, but so do the shareholders.

TH: My last question is about the group’s financial capacity to continue with the expansion we had seen previously. Again, what do your sources and people who follow the business in your network report on Orpea’s ability to fuel this expansion? Or is it blocked now?

VC: I know it was very difficult in the months following the publication of the book:

1. Some staff wanted to leave;
2. There were unexpected costs, including provisions for upcoming investigations and compensation for the state and families;
3. Demand for some of their nursing homes declined. 

In addition, we have seen the more recent increase in some costs such as energy, which have also hit Orpea. 

Meanwhile, as a group that had been developing steadily, its lifeline was access to a constant supply of liquidity through borrowing – but banks suddenly stopped lending because there was an enormous crisis of confidence. For several months, the situation was very complicated, with a range of renovation or maintenance works being stopped. For example, in a nursing home where you would be doing up one floor or a number of rooms, this was frozen. Several local managers told me that day-to-day jobs such as an air conditioner here, a heater there were not repaired or took much longer than usual because everything was either frozen or slowed down. At that point, the senior management team announced that a number of projects were stopped because of financial trouble.

Previously, they borrowed at minuscule interest rates. Now, after much difficulty, they have convinced their banks to refinance them but at much higher interest rates than before, which is going to cost them a lot more. This has unfrozen the situation, but they are now facing a crisis I don’t think they have experienced in a very long time. On the one hand, costs are increasing; on the other hand, there are fewer residents and the banks are lending less. Yesterday, Orpea’s stock price again lost 20 per cent of its value following two announcements. First, the courts have annulled the latest election of employee representatives – but this did not cause the 20 per cent drop. More importantly, they reported a fall in margins for the first time.

The situation will probably remain tense for the following weeks and months and I know that they will, for example, cut back on development plans. It is very likely that planned projects will be mothballed and, to free up cash, they will have to sell some properties.

What does the crisis mean for the group's aggressive expansion plans in Ireland? We explore the impact of the Orpea scandal in this country tomorrow in part 2 of this series.