The hospitality sector is inherently fast-paced and competitive, with many aspects affected by outside factors. This year has added additional challenges to an already difficult market. Energy prices are rising, there is a shortage of labour, the supply chain continues to be disrupted, and consumers are changing how they spend their money. As a result, UK hospitality businesses are struggling. Even well-managed operations in the restaurant, hotel, pub and cafe sectors are finding it increasingly difficult to keep their heads above water.
Plenty of news headlines are pointing to a huge reduction in the number of hospitality businesses currently operating in the UK. The BBC claims that pubs are closing at a rate of two per day, while The Guardian reports massive cost surges and heightened worry among hospitality business owners. Now more than ever, it’s key to seek advice regarding insolvency for hospitality businesses.
When cash flow becomes tight and debts begin to accumulate, it is easy to become overwhelmed. Fortunately, we’re here to help you understand your options should things start to look difficult for your own business. Let’s take a look at insolvency for hospitality businesses.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement is generally one of the most flexible methods available to hospitality businesses that seek to remain operationally capable but struggle with historical debt.
Through a CVA, a business will agree with its creditors on a repayment schedule of debts over time via regular and manageable payments made each month, while at the same time continuing to run the business as usual. This is a strong means of handling insolvency for hospitality businesses if a deal can be struck with creditors. Businesses often find that having a CVA is much preferred to more disruptive forms of insolvency, as it allows the business to continue trading and generate revenue instead of shutting down completely.
Company Administration
Company Administration provides protection for a business against creditor pressure until a rescue or liquidation strategy has been determined. Upon entry into administration, creditor legal actions are stayed, and time is afforded to identify the most suitable course of action.
Businesses can benefit significantly from administration in certain situations. This makes it quite an attractive means of dealing with insolvency for hospitality businesses where locations, brands and/or customer loyalty retain significant worth and present a viable pathway to profitability. If applied correctly, it can protect employment and provide continuity of trading, particularly within multi-site chains.
Creditors’ Voluntary Liquidation (CVL)
If a hospitality business is determined to be no longer viable, then a Creditors’ Voluntary Liquidation is likely the best route. This is certainly the cleanest means of handling insolvency for hospitality businesses.
The company is liquidated in an orderly manner, selling off assets and distributing as much of the sale price as possible back to creditors in accordance with their entitlement. Although liquidation results in the demise of the business itself, it is a controlled and structured process compared to being closed down forcefully or through creditor enforcement action.
Additionally, many owners appreciate that a CVL also represents a clean break, allowing them to remove ongoing debt burdens and personal stress associated with the company.
Pre-Pack Administration
A Pre-Pack Administration refers specifically to a form of administration whereby the proposed sale of a business is agreed prior to entering administration and completed immediately thereafter. In the context of hospitality, this can prove highly advantageous where the basic business remains viable, but legacy debts are unaffordable.
A pre-pack administration can allow:
- Trading continuity with minimum disruption.
- Retaining existing employees and customer relations.
- Protecting brand value and location advantage.
UK hospitality businesses are struggling, which is why it’s so crucial to seek professional advice sooner rather than later. Early intervention is what makes the difference between recovery and full insolvency. You can get in touch with us at Ballard Business Recovery to get professional advice from a licensed insolvency practitioner on insolvency for your hospitality business today.
