Rescue, Recovery, and Closure Options for Gyms

The health and fitness sector is highly valuable and fiercely competitive in the UK. It’s seen notable shifts recently. Changing customer tastes means lots of personal trainers now offer online training instead of the usual in-person sessions.

Given the significant decline in income from personal trainer fees and the high fixed costs associated with equipment leases and rising utility bills, gym owners across the UK are uncertain about the future of their businesses. This uncertainty makes future planning nearly impossible for gym owners nationwide.

Understanding the ultimate liquidation process to close your gym 

If your gym is facing financial difficulties or you’re worried it might encounter financial troubles soon, seeking expert advice on your closure options could assist you in determining your next course of action.

If you believe your gym’s financial situation has reached a state of insolvency beyond recovery, you might be contemplating putting your gym into liquidation. 

This process is carried out formally through what is known as a Creditors’ Voluntary Liquidation, or CVL. As a formal insolvency procedure, you’ll need to engage a licensed insolvency practitioner who can oversee this process on behalf of your gym.

Liquidation should ideally be the last step for any gym. However, in certain circumstances, especially when financial concerns become untenable, it may be the only suitable next step. 

By placing your gym into liquidation, it can be wound down in an organised manner. This allows outstanding creditors the opportunity to reclaim some of the money owed to them, depending on the company’s asset levels.

Liquidation allows your staff to make redundancy claims if eligible, ensuring you fulfil your legal obligations as the director of an insolvent company. Seeking professional advice once you confirm your gym’s insolvency is crucial.

How can I rescue my gym? 

In case it is about financial difficulties, it doesn’t necessarily signal the end for your gym. Insolvency doesn’t automatically lead to liquidation. There exist several rescue, turnaround, and restructuring options for viable businesses struggling due to disruptions caused by the coronavirus.

To identify a potential rescue strategy for your gym, the initial step is to pinpoint the root cause of its problems. 

Have operational costs risen? 

Are monthly memberships declining? 

Are equipment and property lease agreements becoming financially burdensome?

If you believe your gym can rebound and there’s a collective desire among you and your fellow directors to initiate a turnaround, a licensed insolvency practitioner can guide you through available options, enabling you to make informed decisions.

For gyms seeking to bridge cash flow gaps, a loan could provide the necessary financial boost. Our specialist commercial finance team is available to assist you in securing suitable funding as cost-effectively as possible.

For instance, funding is advisable only for companies with a robust income stream and a definite plan to repay any borrowed money. If your gym is already insolvent, we need to consider another rescue option.

A process called Company Voluntary Arrangement (CVA) serves as a formal repayment plan for companies unable to meet their borrowing obligations under current arrangements.

An insolvency practitioner will create a proposal based on the indebted company’s financial commitments and its repayment capacity, and present it to creditors. Creditors will then vote on the CVA, and if approved, the plan will legally bind all parties for the CVA’s duration, usually 3-5 years.

CVAs operate on the principle that your gym will settle its present debts and financial obligations using future profits. Therefore, you must convince your creditors that your gym is viable and can sustain agreed payments throughout the CVA period to maintain its success.

If you fail to demonstrate this, your creditors are likely to reject the CVA. Instead, they may opt for alternatives such as compulsory liquidation, believing it will help them recover more of the money owed.

Gyms encountering increasing creditor hostility may require administration to provide the company with some relief while a long-term plan is determined.

Companies in administration benefit from protection against legal action by creditors through a moratorium, preventing the company from being wound up by unhappy creditors. 

However, administration is not a long-term solution; eventually, the company must exit administration, which could happen through another insolvency process like a CVA, a sale to a connected or unconnected party, or liquidation.