The continuing coronavirus crisis has caused unprecedented business disruption across the country, and indeed the world. Several sectors including hospitality, travel, and events, have been particularly badly hit as would-be consumers stay away. However, when certain industries suffer this level of disruption, this filters down to other areas which may not be immediately obvious. One of these is the recruitment industry.
As businesses up and down the country look to trim their workforce rather than add to it, recruiters are finding demand for their services – particularly on behalf of employers – to be falling. While increasing levels of unemployment has unfortunately seen more people than ever active in the jobs market, placing these individuals is proving challenging as employers focus on preserving their business in the here and now rather than pressing on with plans of expansion.
Although much of the activity of recruiters transferred well to the ‘work from home’ model encouraged by the government at the start of the national lockdown, many recruitment firms were required to furlough some of the employees using the Coronavirus Job Retention Scheme (CJRS) as work dried up.
With the COVID-19 pandemic still far from over, the overwhelming feeling of uncertainty on behalf of companies is leading to many going to ground and shelving any possible plans of expanding their workforce. In such an uncertain landscape, planning for the future is almost impossible as no one can say for certain what position the country will be in in several months’ time, nor is any company guaranteed longevity.
If you run a recruitment firm and are concerned about falling demand, are unsure how long you can continue trading if levels don’t bounce back soon, you may be considering placing your company into liquidation. If your recruitment company is insolvent – or you believe it is on its way to becoming insolvent – you can initiate the liquidation process through a formal insolvency process called a Creditors’ Voluntary Liquidation (CVL).
Liquidation of your recruitment company is a serious step to take and it is only usually considered when the company is struggling with unmanageable debts and the chance of its fortunes turning around are slim. A CVL can only be conducted by a licensed insolvency practitioner who will act as the company’s liquidator throughout the process.
Taking advice from an insolvency practitioner should be a priority if your recruitment agency is experiencing financial distress. An insolvency practitioner will be able to talk you through your options – including liquidation – and will be able to advise you on which solution is the most appropriate for your circumstances.
When a company is insolvent, it is not just the director’s interests which need to be considered. Those of outstanding creditors need to take priority in this situation, which means the company should not do anything which could worsen the position of creditors further, such as taking on additional debt or lessening the company’s assets. This is where the input of a licensed insolvency practitioner is invaluable; they will be able to determine what is in the best interests of your company’s creditors and therefore ensure you are adhering to your legal responsibilities as the director of an insolvent company.
If it is decided that liquidation is the best step for your recruitment company to take, your insolvency practitioner will handle the entire process of your company’s behalf. This includes identifying and locating company assets, liaising with your outstanding creditors, and ensuring your recruitment company is officially wound down and its name removed from the register held at Companies House.
Recruitment companies have not been afforded any specialist help by the government during the COVID-19 pandemic, although there are some schemes which have been made available to all companies which you may be able to take advantage of as a recruiter.
The stand out measure was the Coronavirus Job Retention Scheme (CJRS), also known as the furlough scheme which gave companies who had witnessed a drop in demand, the ability to put their employees on temporary leave with a generous wage subsidy from the government. This scheme was extended until March 2021, and has been a lifeline to many companies.
If your recruitment company requires help with more than just subsidising employees’ wages, a government-backed loan, which can be obtained through either the Bounce Back Loan scheme or the Coronavirus Business Interruption Loan Scheme (CBILS), may be a better option. They function as a typical commercial loan would – that is, you would be given a lump sum payment for you to spend on your business, with repayment taking the form of a number of agreed monthly instalments.
With these government-backed schemes, however, borrowing is offered on much more competitive terms than would be found with a traditional high street loan. These loans can be taken for up to 10 years, and no personal guarantee is required to be given by directors in the event of the company being unable to repay. Thanks to the Pay As You Grow amendment, any company which takes out a loan through either of these schemes which later finds itself unable to keep up with the monthly repayments, are offered flexibility and support in settling the borrowing.
If your recruitment agency is struggling with cash flow issues as a result of lower demand for your services during the national lockdown, obtaining a cash boost through this type of funding could be an appropriate way to re-energize your company’s finances. However, if your company already owes a substantial amount of money to creditors which it is struggling to pay back, taking out yet more borrowing is unlikely to help the situation. While it may provide you with the financial power to sustain your recruitment company for another couple of months, once this money runs out you will be back in the same position as you are now, only with another loan to service.
Before seeking any additional borrowing, regardless of how appealing the terms may be, you should think carefully about whether this will make a material difference to your company and whether it will be the catalyst to improving your situation or simply temporarily pushing the problem further down the road.
Sally had been running her recruitment company in a small but bustling city for over 10 years. During that time, she had built the business up from a standing start to having over 15 full- and part-time employees.
The company initially specialised in recruiting roles within professional services, however, the scope of the firm had expanded to cover a host of vacancies including hospitality, retail, and general administrative positions.
The company experienced a downturn almost immediately following the announcement that the country was going into lockdown during spring 2020. Existing clients withdrew or paused their recruitment activities, while new clients were also thin on the ground. Shortly after, 13 employees were furloughed, with the recruitment agency continuing to operate with skeleton staff to ensure any queries were dealt with accordingly.
Although the company continued to trade throughout the whole of the lockdown period, very little money was generated, yet outgoings for rent, utilities, and the staff members which were retained, continued to be paid.
Wanting to save the company she had worked so hard to build, Sally contacted Real Business Rescue for advice on what to do next. After discussions with a licensed insolvency practitioner it was determined that, due to the company’s reputation and the variety of sectors it recruited for, the business was a viable entity and plans were put in place to help.
A formal insolvency process known as a CVA was drawn up and presented to creditors. This allowed for the recruitment company’s contractual monthly repayments to be reduced to a lower and more manageable amount while the business’s revenue increased. This has alleviated the immediate pressures being faced, allowing Sally to focus on rebuilding the company knowing her overheads are serviceable even with reduced income.
Depending on the desirability of your business, there may be a possibility of selling your recruitment company on the open market. This may even be possible if your company is insolvent or is currently losing money. Your chances of successfully selling your recruitment agency will be based on a range of factors including your financial success prior to the COVID-19 pandemic, your reputation, your industry specialism, as well as you client book.
Even in a challenging climate, there are always investors looking to acquire businesses to add to their portfolios. At Real Business Rescue, we have an in-house team of corporate finance experts who deal with these investors every day. We can quickly ascertain whether your recruitment company is saleable, and if so, we know the right people to talk to.
Selling your recruitment company comes with a host of benefits to both yourself, your clients, and your employees. A smooth transaction can allow the business to continue operating with limited disruption to the service you provide, as well as ensuring your employees are transferred over to the new company as soon as the transaction completes. Not only that, but you are also able to walk away with the money from the sale as a reward for your hard work over the years.
Despite this, it must be said that not all recruitment companies will be able to be sold. For some, their financial problems may be too much for an investor to take on, whereas others will simply not be seen as viable as a long-term prospect.
Even if your recruitment company cannot be sold, it does not mean that all hope is lost and closure is the only option. In many cases, a company experiencing financial or operational difficulties, can be rescued by using one of a number of restructuring and business turnaround methods.
Just because your recruitment company is going through a bad patch, does not always mean that closure through liquidation is necessary. At Real Business Rescue, our number one focus is always on saving businesses where this is deemed possible.
In order to maximise the chances of effecting a successful turnaround, we treat every business as the individual entity that it is, taking the time to understand the specific problems it is facing and the challenges encountered to lead up to this point. Taking this bespoke approach allows us to give tailored advice which is aimed at the pain points of your recruitment company, not simply the industry in general.
If your recruitment company was performing well before COVID-19, and you have found your operations and income are slowly heading in the right direction once again, taking out a form of commercial borrowing could help you to bridge the cash flow gap caused by months of poor trade.
We have a team of commercial finance experts who can assist you in securing the most competitive and appropriate form of borrowing to solve your current struggles. With access to a huge range of lenders from traditional high street banks, through to more niche alternative lenders, we can source the very best product for you at the very best price. When seeking funding, it is important to ensure the borrowing works for your business both now, but also in the future; this is where the input of a commercial finance specialist is vital.
If, like many companies at the moment, your recruitment firm has fallen behind in its obligation to creditors – including HMRC – you may be better off trying to negotiate with them directly rather than borrowing more to repay them.
HMRC arrears may be able to be settled by entering into a Time to Pay (TTP) arrangement, giving you the opportunity to spread the money you owe over a longer period of time. We can assist you with these negotiations, giving you the best chance possible of having your proposal agreed to. When negotiating a TTP, you need to strike a careful balance between offering enough to HMRC to show you can clear your balance in a reasonable time, and also not offering too much to give HMRC doubts as to whether you will be able to stick to the agreement long-term. With our expertise, we can help position your proposal just right.
If your debts are spread between a number of creditors, however, a Company Voluntary Arrangement (CVA), may be more suitable. This also involves entering into formal negotiations with creditors in order to reduce your current monthly repayments, however, this must be done through a licensed insolvency practitioner.
A CVA lasts anywhere between 3-5 years, and your appointed insolvency practitioner will be involved in the arrangement for its duration. They will act as supervisor, and will essentially be the ‘middle man’ between you and your creditors who are included in the CVA. You will make your monthly payment to the insolvency practitioner, who will then distribute this amongst your creditors as agreed.
As long as you stick to the repayments, making them in full and on time, and refrain from accruing more debt during this time, you will be in a much better position financially when you emerge from the CVA. Not only will you have benefitted from lower monthly payments, but depending on the amount you can afford to repay, some debt may also be written off as part of the agreement.
An accelerated version of the CVA process, known as a Fast-Track CVA, is aimed at smaller companies and seeks to minimize both the time and cost of a traditional CVA. Developed as a response to sudden financial problems experienced by previously profitable businesses prior to the pandemic, a Fast-Track CVA could provide the ideal level of intervention a company needs to quickly reverse its fortunes.
Company administration is another insolvency process which may be suited to companies which either have a chance of being rescued, or would benefit from this process prior to being liquidated. When a company is placed into administration, a moratorium is placed around the business which acts as a legal barrier, preventing both current and threatened legal action.
This allows a decision as to the future of the company to be made free from the possibility of a creditor petitioning for the winding up of the company forcing it into compulsory liquidation before other options have been thoroughly explored.
Running your own recruitment company often involves you taking on the role of an employee as well as a director. Due to this, if your recruitment company becomes insolvent and has to enter a formal liquidation process, you may be entitled to a redundancy claim.
Redundancy for directors works in the same way as redundancy for your employees, meaning you must meet a number of conditions in order to have a legitimate right to claim. You must have worked for your recruitment firm for a minimum of two years, undertaking at least 16 hours of work per week. You must also be on the company’s payroll and taking a regular salary through PAYE. The amount you may be able to claim will be worked out based on your salary, hours worked, and length of service.
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 you discuss your director redundancy claim further.
26th November 2020
Issues around late payments of invoices have increased significantly since the onset of the coronavirus pandemic, according to recent research.Read More
25th November 2020
The government’s plan to introduce a tiered system of Covid-19 restrictions in England once the current lockdown ends in early December has come as welcome news for some business sectors but not all.Read More