The ‘stay at home’ message during the ongoing COVID-19 pandemic, has had huge ramifications for the transport industry. With fewer people out and about, the demand for transport services have seen a significant decline. This decrease in passenger fares has affected almost the entire public transport industry, from bus, train, and coach operators, through to taxi drivers, and airport pick up service providers.
Bus and train operators have been forced to work on reduced services to reflect lessening demand as people are encouraged to remain working from home where possible. With a reduced timetable, drivers can be furloughed using the government’s Coronavirus Job Retention Scheme (CJRS), however, there are still a host of costs which need to be paid for those services which are running a service with only a fraction of the total potential capacity on board. Driver wages, insurance, tax, and maintenance costs remain the same, and while fuel costs may be slightly lower due to the lessened weight of the vehicle, these savings only represent a drop in the ocean and is economically unviable over the long-term
There are also fears that the long-term effects of the pandemic could see commuters remaining resistant to taking public transport even once the need for travelling into the office returns. Despite bus and train operators putting measures in place, including increased ventilation and mandatory face coverings for passengers, the reticence on behalf of the public to return to using public transport may mean these attempts to make the environment COVID-safe counts for little.
Taxi companies are also seeing their takings plummet as pubs and restaurants are forced to close during government-imposed lockdowns and being subject to curfews at other times, coupled with restrictions on household mixing, nights out on the town are becoming a thing of the past for many. Taxi drivers would typically see a surge in demand on Friday and Saturday nights transporting these revelers between venues and home at the end of the night. With this market now gone – at least for the time being – many taxi firms are fearful for the future.
With virtually no tourism, public transport in the country’s major tourist towns and cities has also remained quiet; while the lack of people travelling on business, and opting for virtual meetings instead, has also had an impact on overall demand for trains, taxis, as well as airport pick up and chauffeur services.
Whether you run a taxi firm, operate public transport services, or host coach tours, if your transport company is experiencing a drop in demand, it is likely you are considering what the future holds. Depending on the financial position of your transport company, you may be considering placing it into liquidation if the situation does not improve soon.
Liquidation may be an appropriate step to take if the company is insolvent and you do not see any realistic chance of its fortunes improving in the near future. If you know your transport company to be insolvent, you have certain legal obligations as its directors. One of these is to place the interests of the company’s creditors above those of its shareholders in order to mitigate them suffering any further financial losses.
Insolvent company is done through a formal process known as a Creditors’ Voluntary Liquidation – or CVL and can only be entered into under the guidance of a licensed insolvency practitioner who will act as the company’s liquidator.
The insolvency practitioner will have several main responsibilities during the course of a CVL. They will take over all communication with creditors, and they will also be responsible for identifying all assets belonging to your transport company. Due to the nature of your business it is likely these will predominantly take the form of vehicles. These assets will be independently valued before being sold typically through an auction process. The money raised from the sale of company assets will be divided between creditors, before the company is wound down in an orderly way. At this point it will cease to exist as a legal entity and will be removed from the Companies House register
Any company debt which remains outstanding at the point of liquidation will be written off unless you have secured this borrowing by way of a personal guarantee. If a personal guarantee is in place, this will crystalise upon liquidation and responsibility for ensuring repayment will transfer from the company to you personally. If you believe you may have given a personal guarantee for company borrowing you will need to discuss this with your insolvency practitioner to ensure you understand the ramifications of liquidating in this situation and what your options are if you are unable to repay this borrowing.
Back in March 2020, the government introduced a number of initiatives to help support business across the country during this time of unprecedented business disruption. While none of these were aimed squarely at transport companies in particular, all business trading as limited companies are able to take advantage of these schemes.
The standout measure, and one which has been used by transport companies to great success, is the Coronavirus Job Retention Scheme (CJRS) – sometimes known as the furlough scheme. This allowed bus and train operators, as well as taxi firms, to put some of their drivers on furlough while demand for services was low. This meant public transport operators could reduce their timetables to reflect decreasing consumer demand, without having to make staff redundant in the process. As staff can be rotated on and off furlough as needed, it provides the flexibility to bring drivers back if more frequent services return. From its launch, the CJRS has been amended and extended to cater for the ever-changing situation, and it is currently set to run until March 2021.
While the furlough schemes goes a long way to reducing the financial burden on transport companies during these trying times, vehicles tend to come with significant maintenance and running costs, which still need to be paid regardless of whether the company is currently profitable or not.
For those public transport and private hire firms who have found their cash reserves dwindling in light of reduced fares, sourcing an emergency loan may be required. The government have backed two different loan schemes to help companies in need of a financial boost - the Bounce Back Loan scheme for smaller companies, and the Coronavirus Business Interruption Loan Scheme (CBILS) which is aimed at larger businesses.
As these loans are backed by the government, directors are not required to provide a personal guarantee to secure this borrowing. Loans can be taken over 10 years, and interest will not be payable for the first 12 months. Companies who have already taken out one of these loans can now ‘top up’ if they did not take the full amount they were eligible for the first time around.
While these loans are undoubtedly competitive with terms which are unlikely to be beaten by any other form of lending, unless you are confident that this borrowing will be enough to turn the tide and provide the financial boost your transport company needs to return to profitability, caution should be exercised.
If your transport company is already heavily indebted, increasing its debts further, is unlikely to be a wise move. For some, a loan will merely push the company’s current problems forward by a few months while this money is exhausted, after which, its financial position will be in an even worse state making its chances of survival even more bleak.
Your best move is to contact an insolvency practitioner for advice before piling more debt onto the company. There are a range of business rescue and recovery options available which do not involve overburdening the business financially.
The company operated coach tours nationally and, recently, into Europe. The main market was retired couples and individuals, although school trips were also responsible for a significant portion of the firm’s income.
When the COVID-19 pandemic reached the UK, schools were shut and the public were ordered to stay at home were possible. This meant all upcoming trips which had already been paid for had to be postponed or cancelled altogether, and although the company gave people the option of rescheduling their booking for a later date, the vast majority of customer opted for an immediate refund. This caused a huge gap in the company’s cash flow, with new enquiries thin on the ground.
The company’s main concern was uncertainty. When operating at full capacity, the company was extremely profitable, however, without a regular source of income, Eileen was considering whether the company should be wound up. However, once the schools returned, social distancing regulations meant fewer pupils were allowed on each service, meaning an increased fleet of coaches and buses were required. Eileen was able to secure a regular booking operating a school service which gave the company a fighting chance of survival.
With this guaranteed source of income secured, Eileen contacted Real Business Rescue for help in restructuring the company’s liabilities in order to ease cash flow. Thanks to the security offered by the school contract, a CVA was able to be negotiated with creditors, resulting in a portion of the debt being written off, with the rest restructured into more affordable monthly repayments.
For some owners of transport businesses, selling them to a competitor or other interested party could be a realistic way of divesting yourself of the company while allowing the business to continue to operate. Selling a company is an extremely involved process, and not all businesses will be desirable on the open market.
Much will depend on the existing and potential customer base, its location, existing contracts, and assets held by the company. If you can demonstrate that the business is a good prospect to an investor, you may be able to secure a deal.
At Real Business Rescue, we have a dedicated team of corporate finance specialists who help sell businesses just like yours every single day. Our expertise allows us to assist you and your company every step of the way, from generating interest in your business, through to negotiating a deal, conducting the necessary due diligence, and ensuring the transaction completes in a timely manner. Not only can our involvement help remove much of the stress associated with the buying and selling process, but it can also speed up the transaction considerably, meaning you can reap the rewards of your business sale much sooner.
Selling a business at any time can be difficult, and this process is only made the more challenging in the current climate. Due to this, if the business is deemed not to be saleable at the current time or in its current state, you can discuss the options available for restructuring your transport company with your Real Business Rescue insolvency practitioner.
When it comes to rescuing a financially distressed transport company, there are a host of options which can be considered. What may work for one company, may be wholly unsuitable for another. At Real Business Rescue, our team of licensed insolvency practitioners and business turnaround experts, will take the time to fully understand your company, its current challenges, and the circumstances which led up to these difficulties. By adopting this personal approach, we can ensure we are putting a plan in place which will help stabilise your business now, while also being appropriate for your future aspirations regardless of what they may be.
If your transport company was in a healthy financial position prior to the disruption caused by COVID-19, you are in a better place to start exploring potential rescue options than you would be if the business was already running at a loss before the effects of the pandemic began to be felt.
If your company has started to see custom return and you are confident for the future, obtaining a commercial loan may be what you need to bridge the cash flow gap caused by the previous months of business interruption. Funding can be sourced either through a government-backed loan such as a CBILS or Bounce Back Loan, or alternatively through a form of asset-based lending or invoice discounting arrangement. Real Business Rescue have a team of commercial finance experts who can help you navigate the commercial lending arena, helping you to source the most appropriate and cost-effective form of funding for your transport business.
Depending on how serious your current financial worries are, your transport company may have fallen into arrears with creditors. If this is the case, your best move may be to enter into discussions with your creditors and arrange an affordable and sustainable way of repaying the money you owe.
This can be done through informal discussions, or alternatively through a formal negotiation process assisted by an insolvency practitioner. For those with a number of outstanding creditors, yet see their business as ultimately viable over the long-term, a Company Voluntary Arrangement (CVA) may be suitable.
A CVA is a formal insolvency process which, once approved by creditors, becomes legally-binding on all parties. CVAs usually run for anywhere between 3-5 years, and during this time, the indebted company will make a series of agreed monthly repayments towards its debts which will be supervised by the appointed licensed insolvency practitioner. Depending on what the company can afford to repay, some debt may be written off as part of the process, with the rest being structured into a more affordable payment plan.
Although CVAs can give companies the time and financial breathing space needed to return to a position of profitability, it must be stated that they are not suitable for all companies. In order for a CVA to be implemented, at least 75% (by value) of creditors must give their consent. This is only likely to happen if creditors can be convinced of the future prospects of the company, and are confident that the proposed repayments will be able to be paid for the duration of the CVA. If creditors feel your company is likely to fail, they will not allow the CVA to progress.
Upon a transport company becoming insolvent and entering into a formal liquidation process, all employees will be made redundant as the company is wound down. Those who have worked for the company for at least two years will be eligible for a redundancy payment as part of this process.
What many company directors don’t realise, however, is that they too often have a right to claim redundancy should their company enter into an insolvent liquidation. Directors are often eligible for a redundancy payout as they are typically also classed as an employee of the company, which gives them the same rights as those they employ.
There are a number of criteria which must be met before you can submit a redundancy claim, but generally speaking, as long as you have at least two years’ service for your transport company, work a minimum of 16 hours per week, and take a wage through PAYE, it is highly likely you will have a genuine right to redundancy.
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.
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