In line with many industries, providers of early years care were ordered to close when the country went into its first lockdown in March 2020, with only vulnerable children and those of keyworkers able to attend. Although nurseries and childminders were given the green light to re-open as of June 1st, the challenges have continued to grow.
Falling occupancy levels during lockdown have seen many early years settings suffer a sharp dip in takings. With parents furloughed, on reduced hours, or able to work from home, the demand for childcare places has plummeted, with a poll by the Early Years Alliance (EYA) fearing that this could lead to mass closures of childcare facilities across the country.
The financial health of many childcare providers will have been hit hard due to the sharp fall in numbers during the Spring, meaning short-term liquidity will have been hurt. However, the challenges do not stop there. Increased challenges, and ongoing costs, when it comes to protecting staff and children alike in these settings, has pushed an already financially delicate industry to breaking point.
As many childminders are self-employed, they too will have seen their income suffer a huge drop, and relying on the Self Employed Income Support Scheme (SEISS). With falling demand, and a prevailing sense of uncertainty as to when and indeed if the demand for childminding services will return to pre-COVID levels, this will test the desire of many childminders as to whether they wish to remain in the industry.
Nurseries and childminders provide a vital service, allowing parents – including hospital staff and other key workers - to continue to do their jobs during the COVID-19 pandemic. However, despite the crucial role childcare providers play, many have found the government support given at this time severely lacking, causing some to fear for their future. Without adequate childcare provisions, many parents could find themselves in a tough spot.
If you run a nursery, playschool, or provide early years care, it is likely you have found the past year difficult on a financial level unless your business entered the pandemic with healthy cash reserves. If your nursery or childcare business is struggling financially, you may be considering whether placing the company into liquidation is the best option. Voluntary liquidation of a company is achieved through a process known as a Creditors’ Voluntary Liquidation – or CVL. CVLs are initiated by the directors or shareholders of an insolvent company, and allow for the business to be wound down and brought to an end in an orderly manner under the supervision of a licensed professional.
A company can only be placed into a CVL by a licensed insolvency practitioner. They will first need to determine whether liquidation is appropriate for your nursery, or whether there are any alternative options. While liquidation is a major step for any business to take, when it is a nursery, childminding, or early years provider which is being liquidated, the process must be handled with extreme caution to ensure minimal disruption throughout the process.
Liquidating a nursery does not just impact the directors of the company itself, but also the lives of parents and children who rely on the business to provide this vital care. By taking the advice of a licensed insolvency practitioner you will be able to understand exactly what liquidation means for you, your staff, and the children under your care.
At the start of the pandemic, the government introduced a range of measures to help support businesses during the unprecedented period of business disruption. This included access to government-backed loans as well as the hugely successful Coronavirus Job Retention Scheme (CJRS) which allowed companies to furlough staff for whom there was insufficient work.
However, as many nurseries already receive government funding, the situation was slightly different. While childcare providers were able to take advantage of the furlough scheme to cover staff wages while occupancy rates were low, this was restricted to privately funded childcare hours only. Childcare providers have been to continue to receive funding for the public funded hours, however, for those who generate most of their income though parents’ fees, many will have seen their income take a serious hit.
Self-employed childminders were able to access the SEISS if they met the criteria, although the immediate as well as continuing loss of fees will still leave many with a financial hole.
Some nurseries were able to access the Small Business Grant Scheme if they pay little or no business rates and are otherwise eligible for small business rate relief (SBRR), rural rate relief (RRR) and/or tapered relief. The Small Business Grant Scheme provided a one-off non-repayable grant of £10,000 to qualifying businesses.
It was also announced that the vast majority of nurseries and childcare providers in England would not be liable to pay business rates during the 2020 to 2021 tax year. This applied to properties which were occupied by providers on Ofsted's Early Years Register and which were wholly or mainly used for the provision of the Early Years Foundation Stage.
Childcare businesses which had suffered a drop in income and needed a way of plugging this gap could apply for a government-backed loan through either the Bounce Back Loan scheme or the Coronavirus Business Interruption Loan Scheme (CBILS).
These loans were offered on extremely competitive rates and with extremely favourable terms; however, you are advised to think very carefully before taking one out to support your nursery. For some nurseries, the financial injection offered by one of these loans will be exactly what the company needs to get it finances back on track. For others, however, all a loan will do is kick the problems the business is facing down the road for a couple of months.
If taking out a loan will only delay the inevitable, rather than solve your nursery’s financial woes, you should make it a priority to seek the advice of a licensed insolvency practitioner who will be able to talk you through your options which will not involve you further burdening the company with additional debt.
Andrea’s nursery generated income through both government-funded places, as well as those which were privately-funded. Prior to the COVID pandemic and subsequent lockdown, the nursery was running at capacity, and making a healthy profit.
Once the country was put into lockdown in spring 2002, Andrea’s nursery saw occupancy levels plummet, with just five children of keyworkers attending on a regular basis. Andrea was able to furlough a number of her employees and continue to cover 80% of their wages by using the furlough scheme as well as the existing government-funded hours.
The nursery reopened to all children from June, yet not all children, causing the nursery’s cash flow to be severely impacted as overheads were still running at high levels. Andrea contacted Real Business Rescue to better understand her options.
It was determined that the nursery was viable, even with reduced demand, although it was also evident that more children were steadily returning to the nursery as more and more parents were returning to the workplace. While the nursery was able to meet its day-to-day running costs with the reduced income it was generating, keeping up with the monthly repayments on existing borrowings was proving to be more of a struggle.
A CVA was proposed to the nursery’s creditors in order to reduce the monthly financial burden for the next five years while demand returns to pre-COVID levels. The nursery continued to operate as usual throughout the CVA’s proposal and implementation meaning there was no disruption to the level of care provided to children during this time.
Even if you no longer want to continue operating your nursery, there is a chance that someone else may want to buy the business from you. If your nursery is still operating at a profit and has managed to keep occupancy levels high, this will be an easier task; however, even if your nursery is currently experiencing a period of financially distress, selling the business may still be a possibility.
Whether your nursery is saleable will depend on a whole host of factors including location, its trading premises, previous financial performance, as well as its overall reputation for providing quality care.
Selling your nursery has many benefits. It could allow you to leave the company and receive some money for doing this, while also minimising the disruption to staff, parents, and children. A sale can be arranged which will facilitate a smooth transition between yourself and the new owners meaning the service provided to children in your care would be seamless.
While selling a business may seem like the best outcome, for many nurseries this could be a tough process particularly during a worldwide health and economic crisis. Having the right people on your side could increase the likelihood of a successful sale considerably. Real Business Rescue has an in-house corporate finance team who can help you navigate the whole process, from ascertaining whether your nursery is saleable, through to valuing and marketing the business for sale.
We will use our extensive network of investor contacts to gauge the market and expertly determine whether your nursery is a desirable acquisition opportunity in the current climate. If it is, we know exactly how to market your nursery and who to present it to in order to secure a sale.
If we do not believe your business is going to be saleable, our licensed insolvency practitioners will still be here to talk you through your options for either closing or rescuing the nursery.
Even if your nursery is currently struggling to make ends meet, this does not necessarily mean it is beyond rescue. Depending on the financial and operational performance of your nursery, as well as its likely future viability, there are a range of business rescue, recovery, and turnaround options which can be explored.
If your nursery was performing well before the COVID-19 pandemic and spring lockdown, the changes of effecting a successful turnaround are greater than if the business was already experiencing a downturn in performance. When it comes to putting a rescue plan in place, it is vital to understand the root cause of the problems and also how these are manifesting themselves in your day-to-day operations.
If your nursery is experiencing acute cash flow worries and has subsequently fallen behind in meeting its outgoings whether to creditors, HMRC, or your landlord, beginning a conversation with those you have fallen into arrears with is often the best place to start. This type of negotiation can be done on either a formal or an informal level depending on the level of debt owed as well as your ability to repay. This could help lessen your monthly outgoings for an agreed period of time, allowing your cash flow back to recover.
If your nursery owes its chief debt to HMRC, one solution may be to enter into a Time to Pay (TTP) arrangement to spread your tax arrears over a longer period of time. Your ability to negotiate such an agreement will largely depend on your ability to clear your arrears within a reasonable length of time – typically no more than 12 months – as well as being able to demonstrate a good track record of adhering to your HMRC obligations in the past.
TTPs have been an option to those with tax arrears for some time, however, in light of the COVID-19 pandemic, the government assured business owners that the criteria for these types of payment plans would be eased in order to allow more companies to take advantage of them.
While a TTP can provide the time and space needed to help your nursery build back up its cash reserves, if you have a number of creditors who you are struggling to repay, this type of arrangement may not go far enough.
If there are multiple debts to consider, a Company Voluntary Arrangement (CVA) may be a more appropriate solution. A CVA is a formal payment plan entered into by an indebted company and its creditors which can include suppliers, HMRC, as well as landlords. A CVA will typically run for between 3-5 years, during which time the company will make regular repayments to cover outstanding debts, however, this will be at a lower and more sustainable rate than current payments. Depending on what your nursery can afford to repay, some debt may also be written off as part of the process.
A CVA can only be entered into under the guidance and supervision of a licensed insolvency practitioner. They will be in charge of drawing up a proposal and presenting this to creditors of your behalf. At least 75% (by value) of creditors must agree to the CVA before it can be implemented, however, once this is achieved the CVA becomes legally-binding on all parties.
If your creditors are becoming increasingly hostile, however, and are threatening legal action, you may need to place your nursery into administration in order to protect the company from being forcibly wound up by creditors. Once your nursery is in administration, it is granted legal protection through what is known as a moratorium. This prevents creditors from beginning, or continuing, with any litigation proceedings, giving the appointed insolvency practitioner time to formulate a workable plan going forwards.
Administration is not a position a company can stay in indefinitely; at some stage it will have to exit administration, however, its exit can be managed in a number of ways. A nursery may exit administration and immediately enter an alternative rescue procedure such as a CVA, it may be sold to a connected or unconnected third party, or it may be the case that sufficient restructuring was able to be done while in administration allowing the business to continue trading in its current form. For some companies, however, there may be no way of rescue and therefore no alternative but to exit administration and to enter liquidation.
If run your nursery, early years, or childcare business as a limited company, you may be entitled to make a claim for redundancy if your nursery becomes insolvent and enters liquidation. This is because many directors are also classed as employees of their business too.
As long you have worked for your nursery for at least two years, for at least 16 hours per week, and paid yourself a regular salary through PAYE, it is highly likely you will have a valid claim. The amount you will be entitled to will depend on your age, your salary, and also your length of service with the nursery.
As well as redundancy, you may also be able to claim for additional statutory entitlements such as unpaid holidays, arrears of wages, and notice pay. While these additional elements will be subject to tax at your usual rate, they can still increase your total payout by a significant amount.
As part of the liquidation process, your appointed insolvency practitioner will be able to refer you to a fully regulated claims management firm who can help qualify your entitlement to claim.
13th October 2021
The Bank of England has said it anticipates that rates of corporate insolvency will increase in the coming weeks following the removal of restrictions on winding up petitions.Read More