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Rescue, Recovery, and Closure Options for Hotels
Soaring running costs and increasing staff salaries threatens to have long-term repercussions on an already challenging industry. If your hotel is experiencing financial distress, or you are worried what the future holds, it is vital you take expert advice as a matter of urgency and ensure you understand of all of your options.
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Depending on the financial position of your hotel and the prospects for this improving, you may be considering placing your hotel into liquidation. Liquidation is the final straw for insolvent companies, however, if you believe your hotel has reached the end of the road, this could be the best option for your business, your staff, and also your creditors.
The liquidation of an insolvent hotel is done through a formal insolvency procedure known as a Creditors’ Voluntary Liquidation – or CVL. This process can only be entered into under the guidance of a licensed insolvency practitioner whose role it will be to identify and realise company assets, deal with creditors on your behalf, and to wind down your hotel in an orderly manner.
Liquidating your hotel is unlikely to be a prospect you are relishing, however, this process will allow for eligible staff to claim redundancy, protect your existing creditors from incurring further losses, as well as ensuring you as director are adhering to your legal responsibilities at this time.
An insolvency practitioner will be able to talk you through the entire liquidation process and determine whether liquidation is right for your hotel. If it is, we will take control of the whole process once appointed; if, however, there is a chance to save your hotel from closure, we will explore a range of rescue and recovery options to get your hotel back on its feet.
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Even if your hotel is currently going through financial difficulties, this does not necessarily mean closing it down and placing the hotel into liquidation is the only answer to your problems. Particularly if your hotel has only begun displaying cash flow worries since the pandemic hit, there are a range of business rescue and recovery options which may be able to help.
Unlike voluntary liquidation for an insolvent company which is achieved through a CVL, rescuing a financially viable yet struggling business, comes in many forms. Real Business Rescue’s team of licensed insolvency practitioners can quickly determine whether rescuing your hotel is possible, and if so, they will explore the options for doing this.
If your hotel’s financial problems stem from the lack of income earned during the months of enforced closure, yet trade has now returned to acceptable levels, beginning a process of negotiation with your creditors could help to reduce your monthly outgoings while your cash reserves are replenished.
This can be done through informal negotiations, or by way of a legally-binding repayment plan known as a Company Voluntary Arrangement (CVA). CVAs typically last between 3-5 years and are entered into by an indebted company and its creditors, overseen by a licensed insolvency practitioner who will act as nominee and supervisor for the duration. CVAs allow for a financially distressed company to pay back its outstanding debts over a mutually agreed period and at a mutually agreed monthly rate. Some debt is typically wiped out during the process.
A CVA works on the basis of a company using future earnings to pay existing debts, and before it can be implemented at least 75% (by value) of the company’s creditors must agree to the proposal. This means that only those companies which can demonstrate long-term future viability are likely to have a CVA being voted in by creditors. Smaller hotels may be able to utilise an accelerated version of this process known as a Fast-Track CVA which achieves the same result in a shorter length of time.
Other hotels will need to be placed into administration while a route forward is plotted by the appointed insolvency practitioner. This allows more time for a long-term plan to be formulated, free from threats of legal action and winding-up petitions by creditors.
In some cases, hotels will require no more than an injection of cash to boost cash flow and allow operations to resume. Our dedicated in-house commercial finance team can search the market to identify the most appropriate form of funding for your hotel, at the very best rate possible.
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