Foundation trusts have a range of new powers and responsibilities, including the right to borrow money and dispose of property. Shahliza Chaudary explains the legal framework

Since its creation in 1948, the NHS has been the subject of various reorganisations. Following the issue of the NHS Plan in 2000, the NHS braced itself for yet another structural reorganisation, the core of which was to shift the focus from a centrally controlled NHS to a system that was responsive to local clinical priorities.

The legal basis for foundation trusts was provided by the Health and Social Care (Community Health and Standards) Act 2003, which was consolidated by the National Health Service Act 2006 on 1 March.

What are foundation trusts?

FTs differ from NHS trusts in that they are not subject to direction by the health secretary or the performance management requirements of the Department of Health. FTs are regulated by the independent regulator Monitor and are required to abide by its framework for monitoring compliance.

A FT's board of governors is accountable for its success or failure. In the event of failure, Monitor has the power to intervene. FTs can borrow commercially, retain surpluses and invest to serve local needs. Unlike NHS trusts, FTs do not have to comply with NHS Estatecode. Instead, they are subject to an asset protection regime regulated by Monitor and designed to ensure that asset disposals affecting the provision of mandatory services undergo a formal approval process, the main features of which are summarised below.

Sections 45(1) and (2) of the act state: 'An NHS foundation trust may not dispose of any protected property without the approval of the regulator. Disposing of property includes disposing of part of it or granting an interest in it.'

Key definitions

  • Protected property is property required for the purposes of providing mandatory goods and services or mandatory education and training and is property designated as protected in the terms of authorisation of a FT.
  • Property includes land and buildings owned or leased by a FT and does not include property such as equipment, financial assets, cash or intellectual property.
  • Protection applies only to property required for the provision of mandatory goods and services.
  • Disposal is relinquishing ownership of an asset (or any part), including by sale, granting a lease, mortgage or other interest.
  • Mixed use assets are assets that are not used solely for the provision of mandatory goods and services. They.are protected in full, unless the part of the asset required for non-mandatory goods and services is severable and can be disposed of separately.

Asset register

Unlike NHS trusts, each FT is under a continuing duty to maintain and update its asset register to identify:

  • non-protected property
  • protected property, including any acquired or leased in the current financial year
  • plans for disposal in the current financial year.

FTs must notify relevant bodies, including key commissioners, that the updated asset register is available.

The asset register must be made available for inspection by the public and FTs should ensure that revised versions are available for inspection whenever there is a material change of classification between protected and non-protected or where a disposal has been agreed.

Can FTs borrow?

Another distinctive feature of FTs as opposed to other NHS trusts is their freedom to borrow. This will enable FTs to independently invest in new patient care facilities, whereas in the past such investment has been funded centrally or through alliances with the private sector.

FTs' power to borrow is subject to borrowing limits. Each FT is given a.risk rating by Monitor that governs how much they can borrow. However, this power is limited as these borrowings cannot be secured against protected property and lenders cannot take comfort in the residual liabilities legislation, which does not extend protection to FTs or their creditors. It is likely that lenders will have to take a view based on the covenant strength of the FT and the results of their own enquiries.

When will Monitor intervene?

Where an FT is failing to comply with the terms of its authorisation, Monitor is empowered to require specific performance, suspend or remove members of the board of governors and, in theory, take steps to obtain a moratorium on creditor action or a voluntary arrangement in relation to creditors.

Further measures include the transfer of property to other NHS bodies (in order to secure ongoing service provision). The secretary of state may also make an order for the dissolution of the trust, however to date this is untested and there is not a coherent insolvency regime.

The freedoms of borrowing and investment and the use of assets to meet locally determined health priorities will change the face of healthcare delivery as we know it and we look forward to helping FTs use their new powers and opportunities.

Shahliza Chaudary is a senior solicitor at Capsticks.