The coronavirus pandemic is damaging the hospitality industry as bars and nightclubs face total shutdown in parts of the UK to curb the spread of Covid-19. As the pandemic threatens the livelihoods of countless bar and nightclub owners, companies are on the brink with limited financial support. As business operations experience disruption due to Covid-19 restrictions and 10pm curfews, the possibility of increased custom over the festive season appears slim. With no end in sight, bars and nightclubs are operating by the day, tackling the prospect of impending closure.
The Night Time Industries Association (NTIA), representing night time industry venues is campaigning for better protection for nightclubs and greater access to financial support as curfews across the country force bars to cease trading during what are traditionally their busiest hours, while nightclubs have never been given the green light to open at all since the initial lockdown in March 2020. The NTA disputes the extremity of these restrictions, despite the strict implementation of Covid-19 secure measures, including capacity control, additional security and customer tracking.
The nighttime industry, valued at £66bn and supporting 1.3 million employees has been forced to cut back on trading, facing extreme repercussions in comparison to other sectors. As company liabilities increase and the nighttime hospitality scene diminishes due to the pandemic, company directors are being forced to enforce urgent business recovery measures to avoid business closure.
The Coronavirus Job Retention Scheme (CJRS) provides support to bar and nightclub owners to furlough staff to help preserve jobs; while the Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS), offer support to bars and nightclubs, in addition to tax deferrals and business rates relief.
If your business is experiencing financial distress, creditor pressure and can no longer afford to keep the doors open, you may need to consider an insolvency procedure. A licensed insolvency practitioner can ascertain the best route to facilitate an orderly exit and settle outstanding affairs with creditors. If your business no longer has the income or cash flow to continue trading, company liquidation may be a suitable route.
A Creditors’ Voluntary Liquidation (CVL) is a formal insolvency procedure initiated by the company shareholder/director to bring the business to a close. A licensed insolvency practitioner will be responsible for the sale of company assets, including property, equipment, machinery and stock. Once asset value has been realised, the generated funds will be distributed to creditors in priority order.
An alternative to company liquidation is transferring ownership of your bar or nightclub to an actively interested buyer. You may be able to sell part or the whole of your business if it holds value, however, the suitability of this route will be determined by many factors. A member of the Real Business Rescue team can help assess the options available for your bar and club.
Putting a bar or nightclub into company administration may be an option if your business is insolvent and facing increasing pressure from creditors.
A licensed insolvency practitioner can help you take the right step, however, it is vital to seek early assistance as this will increase your chances of recovery and the number of options available to you. An insolvency practitioner will guide you through the liquidation process to close your bar and nightclub and explain how this will impact the future for employees and creditors. If there is a possibility of recovery, your appointed insolvency practitioner will explore a potential restructuring of the company.
As a response to the coronavirus pandemic, the government launched a series of financial support measures to help bars and nightclubs withstand challenging trading conditions, preserve viable jobs and continue trading. As lockdown measures tighten across the country and Covid-19 trading restrictions take a toll on consumer demand, bars and nightclubs are experiencing a nosedive in footfall, pushing them into slow decline.
The climate for the hospitality industry is volatile as guidelines around curfews and trading bans for bars and nightclubs continue to be announced with limited notice. As bar and nightclub owners invest in stock, property maintenance and employee wages, last-minute industry shutdowns have resulted in wasted resources, cash flow depletion and expired food produce. As the threat posed by Covid-19 fluctuates by the day and the level of risk varies depending on location, pubs and nightclubs across the country are subject to different rules.
Adapting nightclub venues to comply with Covid-19 secure guidelines is inevitably more challenging than other businesses in the hospitality sector, pushing the stakes higher for nightclub owners. Bars and nightclubs are core players in the night trade, generating significant profit after 10pm, outside of Covid-19 restrictions. Curfews implemented across the country ordering trading to halt after 10pm eliminates peak trading hours and lifts jobs from under the feet of employees in the hospitality industry.
Government Support: The Coronavirus Job Retention Scheme (CJRS) offers support to bars and nightclubs to keep employees in jobs while establishments are forced to close, providing an element of security when it comes to covering staff wages.
Bars and nightclub businesses can access a government-backed loan through the Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme, depending on the size of the business and funds required. BBLs offers up to £50,000 without a personal guarantee agreement and CBILs targets larger businesses, offering competitive interest rates. The government’s Pay As You Grow Plan extends the repayment period for both loans, offering breathing space to bars and nightclubs.
The Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and sector-specific grant schemes designed for small businesses are short term solutions to help the hospitality industry stay afloat during the pandemic. By temporary filling gaps in cash flow, further borrowing may delay the inevitable for unviable businesses, eventually pushing them into distress once Covid-19 loan repayments begin to bite into cash flow.
As taking out an emergency coronavirus loan may be your only remaining avenue to help survive, your liabilities are likely to increase. If you are unable to keep up with debt repayments as you have extinguished cash reserves, your business may be contingently insolvent and therefore exposed to great risk. Trading while knowingly insolvent is extremely risky as by continuing to perform transactions, you run the risk of worsening the position of creditors.
If your bar or nightclub is on the brink of collapse following a rejected finance application or refusal for a local grant, an accumulation of debt can push your business into fast decline without seeking early support from a licensed insolvency practitioner. As a company director, it is your responsibility to ensure that you seek specialist advice to protect the financial health of your bar and nightclub. We offer a free consultation to bar and nightclub owners across the country, helping you determine the best route forward to cushion your business from the pandemic blows.
Founded in 2011, Steve and his son operated a popular nightclub and bar located in a busy city centre district, predominantly attracting university students. They invested in a major rebrand two years ago and expanded their capacity across three rooms.
The business was experiencing record footfall until the Covid-19 pandemic hit, leading to the closure of universities across the country which curtailed trade from March to the end of the academic year. The furlough scheme granted enough financial support over the Summer period to keep staff in jobs, however, Steve was forced to make redundancies as the tapered scheme no longer provided enough support to keep overheads low during the difficult trading period.
Steve was able to repurpose the nightclub as a bar which allowed him to reopen in time for Freshers Week in September, traditionally one of the business’s most lucrative periods. Although the bar was operating with limited capacity, the size of the establishment meant a significant number of customers could still be accommodated, allowing the business to generate sufficient takings to cover its reopening costs.
Encouraged by the promising start, Steve contacted the experts at Real Business Rescue to put a plan in place to help steady the company as trade recovered.
A CVA was proposed to creditors, who were sufficiently convinced as to the future viability of the company, allowing for a mutually agreeable payment plan to be accepted. The CVA will run for five years, providing both the company and its creditors with a valuable level of security.
If your bar and nightclub business is experiencing cash flow problems following a drop in consumer demand and no longer has the sufficient funds to maintain liabilities, pay suppliers and fulfil financial commitments, you may be interested in making a cost-efficient exit from your bar and nightclub business. As an alternative to company liquidation which seeks to settle outstanding liabilities with creditors, resulting in company closure, selling your bar and nightclub business is a route which could reap returns. Selling your distressed pub and nightclub business to a better-placed buyer can reduce the burden of facilitating recovery for your ailing business by passing on the baton.
To determine if a business sale is a suitable route for you in comparison to company rescue or company closure, a business valuation of your bar and nightclub business will be able to establish the financial value as well as its saleability. By accessing the correct guidance throughout this process, you can maximise sale value and source a suitable buyer for your struggling business.
A bar and nightclub business illustrating strong historic financial performance and a reputable supplier list pre-Covid-19 can attract prospective buyers, taking into consideration existing financial difficulties experienced as a result of the coronavirus pandemic. Actively searching buyers with strong investment backing can help rejuvenate your business and generate returns. If your bar or nightclub is in significant financial distress and lacks asset value and a strong cash balance, you may be able to sell aspects of your business to realise returns, such as stock, property, or trading name.
If you decide to put your bar and nightclub business up for sale, we can help source a buyer through our extensive marketing procedure, investor network and business connections. You will be guided at each stage of the sale process, from the business valuation of your bar and nightclub, due diligence, through to sale negotiations and completion.
If your bar and nightclub business is experiencing financial distress, creditor pressure and can no longer sustain existing liabilities, a licensed insolvency practitioner can advise you on the best route to rescue your business. There are multiple recovery solutions, such as company administration, company restructuring or alternative finance which can help get your business back on track.
If your business is struggling to maintain financial commitments due to poor cash flow, a Company Voluntary Arrangement (CVA) may be a suitable route to assist in your recovery. A CVA or Fast-Track CVA is a formal insolvency procedure which involves agreeing with creditors to restructure liabilities into affordable instalments. By lightening the load off your existing financial commitments, your bar and nightclub business can return to a profitable position.
As an alternative to a Company Voluntary Arrangement, Company Administration is a formal insolvency process which can help induce recovery and manage outstanding affairs with creditors. This formal insolvency process protects your business from legal action against creditors, giving you the much-required breathing space to plan without the impending threat of a winding up petition. Company Administration transfers control to the appointed licensed insolvency practitioner who will act as the administrator, and work towards rescuing the company as a going concern, or else achieving a better result for creditors than would be possible if the company was wound up without first going into administration..
Commercial Finance provides the necessary cash injection for your business, helping you replenish stock, attract customers and maintain supplier relationships. By removing cash flow limitations, you can invest in your business, repay outstanding creditors and continue trading successfully. There are multiple forms of commercial finance products which can help achieve your specific end goal.
If you are the director of your pub or nightclub business and your company enters liquidation, you may be entitled to director redundancy if you have employee status. You can claim director redundancy if your business has been trading for two years or more and you now wish to take the liquidation or administration route as your business is insolvent. In addition to director redundancy, for which the average claim is £9,000, you may be able to claim statutory entitlements such as holiday pay, notice pay and unpaid wages.
It is a common misconception that directors are not entitled to redundancy pay. As with any other employee of your bar and nightclub business, you may be able to claim redundancy. Director redundancy is supported by the Redundancy Payments Service (RPS) and payment is made from the National Insurance fund which is where National Insurance Contributions are housed to facilitate statutory payment schemes, such as redundancy and the state pension.
To successfully claim redundancy for directors, you can submit a claim pre-liquidation or post-liquidation, however, this must be within 12 months of your business entering the liquidation process. To qualify for director redundancy, you must be working 16 hours per week or more for your bar and nightclub business, be under an employment contract for a minimum of two years and regularly paid through PAYE.
During the liquidation process, your licensed insolvency practitioner will be able to direct you to a fully regulated, independent claims management firm specialising in director redundancy who will assess your entitlement.
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