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Closure and rescue options for restaurants
How can you protect your hospitality business from rising costs and changing consumer behaviour? Understand formal insolvency procedures to help save or close your restaurant, such as a Company Voluntary Arrangement (CVA), Company Administration or Creditors’ Voluntary Liquidation (CVL).
The restaurant trade is a notoriously challenging sector, with many businesses simply unable to stand out and survive in an increasingly competitive marketplace. If you believe your restaurant is heading towards a position of insolvency - or perhaps you already know the business to be insolvent - taking expert advice should be a priority. Not only will professional insolvency advice give your restaurant the very best chance possible of effecting a successful turnaround, it will also help to protect your personal position should the company be unable to continue trading.
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If you are concerned as to what the future holds for your restaurant, taking expert advice ahead of time can put you in the best position possible, allowing you to make an informed decision as to your next steps.
This may include a rescue and recovery plan which may allow you to continue trading while restructuring your restaurant’s finances, or alternatively a formal closure process known as a Creditors’ Voluntary Liquidation – or CVL, if the current situation has taken the restaurant beyond the point of rescue and it has become insolvent.
Whether your restaurant can be saved, or whether it needs to close its doors for good, depends on a host of factors including its financial health prior to the pandemic, the local restrictions it has been under or is likely to fall under, as well as its ability to successfully and profitably shift operations to a delivery or collection service.
A licensed insolvency practitioner will be able to talk you through your options, and if it is decided that your restaurant needs to enter liquidation, they will explain what this means for your business, your creditors, and your staff.
A CVL is a formal insolvency process which means it can only be entered into with a licensed insolvency practitioner. They will be responsible for identifying all company assets, distributing proceeds to your company’s outstanding creditors, before ensuring your restaurant is wound down in an orderly manner.
Once your restaurant has been liquidated by way of a CVL, any remaining company debt will be written off, and unless you have provided a personal guarantee for this borrowing, you will not be expected to make up the shortfall.
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If your restaurant is currently experiencing financial difficulties, including squeezed cash flow and falling income, all is not necessarily lost. While some restaurants will inevitably be forced to close after suffering a financially challenging period, many more will be able to be saved if an appropriate plan is put into place in time.
Turning around a struggling restaurant can come in many forms, depending on both the source and the scale of the challenges being faced.
Depending on the root of your current problems, your business may benefit from an injection of capital in order to boost cash flow and allow you to continue meeting your outgoings as and when they fall due. Our in-house team of commercial finance experts can work alongside you to assess the level of funding required to make a difference, as well as your restaurant’s ability to repay this borrowing. We can scour the whole market to find you a channel of funding which is affordable to your company both now and in the future, allowing you to kickstart your operations on a solid financial footing.
If your current problems have caused you to fall behind with creditors – whether these are trade creditors, your bank, HMRC, or a combination of all three – embarking on a negotiation process can not only ease strained relations, but also free up cash flow and provide a level of certainty going forwards.
Depending on the scale of your current debts, negotiation may take place through informal channels, or through a formal agreement such as a Time to Pay Arrangement with HMRC, or a Company Voluntary Arrangement (CVA), which is a formal insolvency process.
A CVA allows an indebted company the chance to restructure its borrowings with a variety of creditors, by effectively using future earnings to repay existing debt. Due to this, in order for a CVA to be possible, you must be able to demonstrate to your creditors that your business is financially viable over the long-term and will therefore be in a position to see out the term of the CVA which typically lasts between 3-5 years.
Your appointed insolvency practitioner will draw up a proposal detailing the financial position of your restaurant and a proposed repayment amount, and creditors will be invited to vote on these plans. At least 75% (by value) need to give their consent; if this happens the agreement becomes legally-binding on all parties.
Alternatively, placing the company into administration may be a better option, particularly if your restaurant is on the receiving end of growing creditor pressure and escalating debt. When a company is facing the prospect of litigation, including the possibility of creditors issuing a winding up petition, time is very much of the essence. If you do not move quickly, your restaurant could be forced into compulsory liquidation; however, acting too quickly can lead to rash decisions being made that may not be in the best interests of your restaurant or your creditors.
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