If you are operating a commercial linen and laundry company, the past year may have posed some unprecedented challenges. For those linen and laundry companies with contracts to provide their services to nursing homes, hospitals, and other healthcare operators, they may have actually found the Covid-19 pandemic has increased demand. However, for those linen companies which primarily service the hospitality industry, there is a different story to tell.
With many hotels restricted to providing accommodation to keyworkers rather than the usual stream of leisure and business travellers, and restaurants having been closed to customers at regular intervals over the last 12 months, this is having a huge knock-on effect on the laundry and linen service.
Professional laundry and linen services help keep the hotel and accommodation industry operating by ensuring a constant supply of clean and fresh bedding, towels, and other linens are available to guests and staff alike. However, commercial laundry operations go beyond accommodation providers. From tablecloths and napkins in restaurants, through to towels in gyms and leisure centres, and uniforms for employees, commercial laundry has touchpoints across much of the industry.
While the need for increased hygiene and the safe handling of laundry has never been greater, with beds remaining empty, and table linen going unused, the demand for professional laundry services has dwindled. While some may have been able to pick up alternative work from the healthcare industry, for many this will fail to compensate fully for the sharp drop in demand from key clients and customers.
Demand for linen and laundry services from the hospitality sector is dependent on the ongoing restrictions and how quickly the industry is able to bounce back to pre-Covid levels. A timeline of recovery for the decimated hospitality and leisure industry is as yet unknown, and it is this overwhelming sense of uncertainty which is making the situation untenable for many who form part of the wider
In many ways, the commercial linen and laundry industry can be seen as one of the many ‘forgotten sectors’ during this pandemic. While the challenges faced by those within the hospitality and leisure industry have been recognised by the government, and financial support packages put in place to help them weather the storm, this level of support has not been extended to those who supply this industry with the products and services necessary to allow them to operate.
As well as lessening demand, commercial linen and laundry operators are also faced with having to engage new protocols in light of the coronavirus pandemic, including how to handle linen which has been used by an individual who has tested positive for Covid-19 and also how to collect and transport both cleaned and used linen while ensuring staff are protected at all times. In many cases this requires additional training and increased costs to ensure necessary sanitary standards are adhered to at all times.
Although staff are able to be furloughed using the Coronavirus Job Retention Scheme (CJRS), many commercial linen companies will still have significant overheads which cannot be as easily covered. Many will have high value assets such as industrial washers and driers paid for using a form of asset-based finance, as well as being tied into a lease agreement for their premises which will still need to be paid. Reduced income and costly outgoings is the perfect storm for the beginnings of financial distress.
If your commercial linen and laundry company is experiencing difficulties, either as a direct result of the Covid-19 pandemic and associated restrictions, or whether trade and profitability has been dwindling for some time, there are a host of formal and informal processes which may be able to help.
For those who have seen the drop in demand for commercial linen and laundry services lead to you falling into arrears with HMRC, negotiating a Time to Pay (TTP) arrangement could be the solution. HMRC have promised to exercise an increased level of understanding to businesses whose financial position has been negatively impacted by the ongoing coronavirus crisis, pledging to help where they can.
A TTP gives a company additional time to bring their tax arrears up to date. Most TTPs run for between 3-6 months, although terms of up to 12 months can be negotiated in some instances. Agreed monthly repayments will be made to HMRC for the duration of the TTP to cover accrued arrears, and companies must ensure they also keep up to date with any current or future tax liabilities which become due.
A CVA is a formal payment plan which is entered into by a company and its outstanding creditors. Unlike a TTP arrangement, a CVA can encompass multiple creditors rather than just HMRC. CVAs typically run for between 3-5 years, and during that time the company will make one recurring monthly repayment which will be distributed amongst creditors on a proportional basis by the acting licensed insolvency practitioner.
As CVAs work on the principle of using future earnings to repay existing debts, they are only suitable for companies which can demonstrate their ongoing viability to creditors. At least 75% (by value) of creditors must agree to the CVA being put in place, however, once this agreement is given, all creditors included in the CVA are bound to its terms regardless of how they voted.
If the problems caused by Covid-19 have rendered your commercial linen and laundry company unviable, and prospects of effecting a turnaround are slim, you may need to consider placing the company into liquidation. This can be done using a director-initiated process known as a Creditors’ Voluntary Liquidation (CVL).
The appointed licensed insolvency practitioner will handle the whole process on behalf of the company, including liaising with creditors and ensuring the company is brought to an orderly end. Any debts remaining will be written off once the company is liquidated so long as these have not been secured with a personal guarantee.
Although staff will be made redundant as part of the liquidation process, those eligible will be able to make a claim for redundancy. In many instances the directors of an insolvent limited company will also have a valid claim for a redundancy pay-out; your insolvency practitioner will be able to discuss this with you further.
If your commercial laundry limited company is experiencing financial problems and you would like some free advice to discuss your options and the way forward, contact the experts at Real Business Rescue today. You can speak to a licensed insolvency practitioner in complete confidence, helping you to understand the most appropriate next steps for you and your business. Call today on 0800 644 6080.
13th October 2021
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