Rescue, Recovery, and Closure Options for Automotive Businesses
If your automotive business is seeing declining revenues in a tough trading environment, you might wonder about its future.
Whether you own a car dealership or a factory manufacturing factory for vehicles or parts, if you’re facing serious financial problems, you might think about putting your automotive company into liquidation.
The ultimate liquidation process to shut down an automotive company
If your automotive company is already insolvent and you want to close it permanently, liquidation would happen by placing the company into a direct-initiated insolvency process known as a Creditors’ Voluntary Liquidation – or CVL.
For instance, you’ll need to appoint a licensed insolvency practitioner who will handle the entire process on behalf of your company. This involves identifying any assets belonging to the company – which in the case of an automotive business may include vehicles, component parts, and machinery. Then, arrange for these assets to be valued and sold.
Profits obtained from the sale of assets will be distributed among the company’s outstanding creditors according to a designated hierarchy outlined in the Insolvency Act 1986.
Any company debt remaining outstanding after this point will be written off during the liquidation process unless the borrowing is secured with a personal guarantee.
Liquidating your automotive business will mark the end of your company. While this might not have been part of your plans, in some cases, liquidation can be the best option when a company becomes insolvent.
Voluntarily placing your company into liquidation will enable eligible staff to claim redundancy. It also helps shield the company’s existing creditors from further losses that could occur if you continue to trade and experience declining revenue.
As the director of an insolvent company, you have several legal responsibilities, including refraining from any actions that could worsen the position of your creditors.
By seeking the advice of an insolvency practitioner at the first signs of trouble, you are not only protecting your creditors’ interests but also showing a commitment to fulfilling your duties when you become aware that your automotive business is insolvent.
Effective Options for Rescuing Automotive Companies
If your automotive business is going through a period of instability, it doesn’t necessarily signify the end of your business. It might mean that the company needs to undergo a process of restructuring—whether operational, financial, or a combination of both—to get it back on track.
A solid, robust, yet flexible plan can promptly stabilise the company in the short term, providing the best chance for long-term success. As part of this, manufacturing capacity may need to be streamlined to conserve funds and resources. It’s also crucial to consider whether your organisation should exit unprofitable markets to preserve cash reserves during this time.
Our team of business turnaround experts will explore every possible option to save your business, whether it’s the entire company or those elements of it that are considered viable.
While voluntarily placing a company into liquidation is done through a CVL, rescuing a financially distressed business offers a variety of options to explore.
If your automotive company is operating on reduced income and faces the risk of defaulting on covenants or other financial arrangements, we can assist by liaising with the bank on your company’s behalf to find a way forward.
Negotiating with your creditors may be the best way to immediately improve cash flow while waiting for revenues to increase. This negotiation could target one creditor, such as a bank, HMRC, or a supplier, or you could propose a repayment plan involving several creditors simultaneously.
This is accomplished through a legally binding repayment plan known as a Company Voluntary Arrangement (CVA). CVAs are a formal insolvency process and therefore can only be entered into under the supervision of a licensed insolvency practitioner.
A typical CVA usually spans 3-5 years, enabling a financially distressed company to repay its outstanding debts at a financially sustainable rate.
Depending on the company’s repayment capacity, some debt may be written off during the process.
Your appointed insolvency practitioner will draft a proposal considering your company’s debt level and repayment capacity. Subsequently, they will present this proposal to creditors, who must then vote on its acceptability.
At least 75% (by value) of the company’s creditors must agree to the proposed CVA for it to be implemented. Once agreed, the CVA becomes legally binding on all parties involved.
It’s important to remember that a CVA operates on the principle of using future income to repay current liabilities. Therefore, only companies that can demonstrate long-term future viability to their creditors are likely to successfully negotiate a CVA.
Redundancy options for directors in automotive companies
In case your automotive business operates as a limited company, there’s a good chance that you are also classified as an employee of the business, serving as both a director and an employee. This distinction becomes particularly important if your company faces insolvency and you enter a formal liquidation process like a CVL.
While your employees are entitled to make a claim for redundancy upon the liquidation of the company, you also have the same entitlement. To qualify for a redundancy payout, you must meet certain criteria.
If you have already worked for your automotive company for a minimum of 16 hours per week for at least two years, receiving a regular salary through PAYE, you will likely have a valid redundancy claim.
The amount you may be entitled to will be calculated based on your length of service with the company, your age at the time of redundancy, and the salary you received through PAYE.
You might also be entitled to other statutory benefits like unpaid wages, unpaid holidays, and notice pay, all of which could significantly increase your final total.
As part of the liquidation process, your appointed insolvency practitioner can refer you to a fully regulated claims management firm that can assist in determining your entitlement to claim.