If the employer is genuinely insolvent, the information on this page applies:
http://www.direct.gov.uk/en/Employment/Redunda ncyAndLeavingYourJob/DG_10026695
However, if the company running the nursing home is not insolvent (e.g. because the home was a part of a group which is otherwise flourishing), the employer must still meet their statutory obligations, irrespective of any debt owed to the employer by the local authority. Start here:
http://www.direct.gov.uk/en/Employment/Redunda ncyAndLeavingYourJob/Redundancy/index.htm
Further advice is available by contacting the ACAS helpline. (It usually takes ages to get through, but it's worth the wait):
http://www.direct.gov.uk/en/Dl1/Directories/DG _10010857
Chris