One of the UK’s biggest care home operators, which looks after about 3,000 elderly residents, is being investigated by regulators, heightening concerns over the state of Britain’s social care provider market.

More than 150 local authorities in England and Scotland were alerted at the end of August that Advinia Group was failing to co-operate with a regulatory inquiry into its finances.

Advinia has 3,250 beds and employs 4,500 staff in its 38 residential homes in England and Scotland. It became England’s 10th biggest care home operator overnight in 2018 after borrowing £59m to buy 22 homes from private healthcare firm Bupa.

The group’s portfolio of nursing and care homes includes 11 homes in and around Glasgow, four in greater Manchester, three in south Yorkshire, three in the west Midlands, two in Liverpool, and two in Lincolnshire.

Leaked documents seen by the Guardian show that the care industry regulator, the Care Quality Commission (CQC), has become seriously concerned in recent months about the group’s cash flow and financial management, as well as its refusal to submit to an independent audit of its finances.

It is understood that Advinia has been blocking attempts by the CQC to conduct an independent business review (IBR) of its finances. The CQC has legal powers to a compel a provider to open its books where it “considers that there is a significant risk to financial sustainability”.

Advinia’s submissions to the CQC over a three-month period in summer showed the company was not generating enough cash to meet capital and interest repayments in the next few months, including £6.2m owed to Credit Suisse next May.

The CQC told Advinia it was required to undergo an IBR to test its financial projections and assess whether it was generating sufficient cash to meet both ongoing operational costs and financing costs as they fall due. Advinia could lose its licence to practice if it does not comply.

The CQC was also concerned about the “competency and capabilities” of Advinia’s finance department, noting it had got through four finance directors in five months over the summer. It said several companies in the group had failed to file statutory accounts with Companies House.

Although the CQC is clear that its advice to local authorities should not be treated as an indication that it considers Advinia is likely to collapse, the company’s refusal to open up its accounts means it cannot give it a clean bill of health.

Concern over Advinia’s finances means local authorities, whose payments for older residents is believed to make up the lion’s share of Advinia’s income, face a dilemma over whether to continue to use the provider.

The CQC told the Guardian it would not comment on individual cases or confidential papers. However, it said any provider subject to its market oversight regime that failed to comply with a request for relevant information or explanation, without reasonable excuse, was potentially committing a criminal offence.

In a statement, Kate Terroni, chief inspector of adult social care at the CQC, said: “Where we are not satisfied with the response we will consider taking further action. This could include but is not limited to the issue of warning notices, the imposition of conditions on a providers registration, or even the suspension or cancellation of registration.”

The documents say Advinia Group’s chair, Sanjeev Kanoria, told the CQC in May that he “could not accept” an IBR. By the end of August he was still refusing to co-operate. Advinia sent a letter to the CQC setting out its reasons for not co-operating, but the regulator insisted this did not provide “the necessary reassurance”.

Advinia was set up 20 years ago by Kanoria and his wife, Sangita. A former surgeon and management consultant, Kanoria is the son of an Indian industrialist. Advinia’s accounts show that it paid a £400,000 dividend to shareholders.

Advinia Group did not initially respond to repeated approaches for comment. After publication, Kanoria denied that the business was in financial trouble and said that it strongly disputed the regulator’s conclusions regarding Advinia’s financial sustainability, adding that the analysis contained “gross errors”.

He said the CQC’s letter to councils was misleading, and demonstrated fundamental shortcomings with the market oversight regime. Advinia has raised its concerns with ministers and is considering legal action against the CQC.

Advinia’s size means that along with all major care home providers in England it is subject to regular financial oversight by the CQC. About 60 large providers are considered to be potentially “difficult to replace” if they were to go bust.

Recent reports have warned that in some areas of England the care market could collapse without extra state funding. Profit margins have been tightly squeezed because fees paid by councils have failed to keep up with staff costs, putting extra pressure on providers that have borrowed heavily.

The UK’s largest care home operator, Four Seasons Healthcare, which has 17,000 residents went into administration in April. Although its 322 care homes were expected to remain open while a buyer is found, recent reports suggest it failed to pay millions of pounds in rent to landlords.

The Conservatives and Labour have promised to fix what they agree is a social care funding crisis. The Labour party last month pledged that in government it would inject £8bn into local authority social care departments over the next few years, while the Tories have also promised to find solutions.

The CQC’s market oversight scheme was introduced in 2015 in response to the collapse in 2011 of Southern Cross, at the time the UK’s biggest care home operator. It was designed to give local authorities time to put in place contingency plans to support residents in the event of major care home closures.