Rescue, Recovery, and Closure Options for Nurseries and Childcare Businesses

Nurseries and other early years establishments across the country are essential for parents. However, they face significant financial strain that could lead some to the brink of collapse. 

While the extension of free childcare hours for three and four-year-olds benefits working parents, it hasn’t been as financially beneficial for those managing childcare provision.

Nurseries providing extra free hours face challenges due to insufficient government funding. Those opting out struggle to attract parents initially.

Moreover, early years providers encounter similar challenges as other service industries relying on traditionally low-paid workers. 

The rise in the national living wage, recent increments in employer National Insurance Contributions, and the requirement to offer a contribution-based workplace pension to eligible employees are causing operating expenses to increase while income remains unchanged.

How do you close your nursery through liquidation? 

If you operate a nursery, playschool, or offer early years care, you’ve probably faced financial challenges in the past couple of years, unless you had substantial cash reserves. 

If your nursery or childcare business is struggling financially, you might be thinking about whether placing the company into liquidation is the best choice. 

The voluntary liquidation of a company is done through a procedure called Creditors’ Voluntary Liquidation – or CVL. CVLs are started by the directors or shareholders of an insolvent company, enabling the business to be wound down and concluded in an organised manner under the guidance of a licensed professional.

Only a licensed insolvency practitioner can initiate a company’s placement into a CVL. Initially, they must assess whether liquidation is suitable for your nursery or if there are alternative options available. 

Liquidation represents a significant decision for any business, especially for nurseries, childminding services, or early years providers. Handling the process with utmost caution is crucial to minimise disruption throughout the proceedings.

The impact of liquidating a nursery extends beyond the directors to the lives of parents and children who depend on the business for essential care. Seeking guidance from a licensed insolvency practitioner helps to grasp the implications of liquidation for you, your staff, and the children under your care.

For instance, selling a business might appear favourable, yet for many nurseries, especially amid a global health and economic crisis, it can be challenging. Engaging the right professionals significantly enhances the chances of a successful sale.

Vanguard Insolvency boasts an in-house corporate finance team capable of guiding you through the entire process, starting from determining the saleability of your nursery to valuing and marketing the business for sale.

We leverage our extensive network of investor contacts to assess the market and expertly ascertain whether your nursery presents a desirable acquisition opportunity in the current climate. If deemed favourable, we possess the expertise to effectively market your nursery and identify potential buyers to secure a sale.

If we determine that your business may not be saleable, our licensed insolvency practitioners will remain available to discuss your options for either closing or rescuing the nursery. We are committed to supporting you through this process.

Rescuing your nursery: Explore effective process! 

Even if your nursery is currently facing financial challenges, it may still be saved. Depending on its financial and operational performance, as well as its potential future viability, various business rescue, recovery, and turnaround options can be explored.

If your nursery has a history of strong financial performance, the likelihood of a successful turnaround is higher compared to one that has always struggled. When implementing a rescue plan, it’s crucial to comprehend the root cause of the issues and how they affect your day-to-day operations.

If your nursery is facing acute cash flow concerns and has fallen behind in meeting its obligations to creditors, HMRC, or your landlord, initiating a conversation with those you owe is often the best initial step.

In this instance, negotiations can be conducted either formally or informally, depending on the level of debt and your repayment capacity. This could help reduce your monthly outgoings for a mutually agreed period, facilitating the recovery of your cash flow.

If your nursery’s primary debt is to HMRC, one solution could be entering into a Time to Pay (TTP) arrangement to extend the payment of tax arrears over a longer period. 

Negotiating such an agreement depends largely on your capability to clear arrears within a reasonable timeframe, usually no more than 12 months, and demonstrating a good track record of meeting HMRC obligations in the past.

While a Time to Pay (TTP) arrangement can offer the necessary time and flexibility for your nursery to rebuild its cash reserves, it may not sufficiently address the challenges if you’re struggling to repay multiple creditors.

If you’re facing multiple debts, a Company Voluntary Arrangement (CVA) might be a more suitable solution. A CVA is a formal payment plan agreed upon by an indebted company and its creditors, which may include suppliers, HMRC, and landlords.

A CVA usually lasts between 3-5 years, during which the company makes regular repayments to settle outstanding debts at a lower, more sustainable rate than current payments. Depending on what your nursery can afford to repay, some debt may also be written off as part of the process.

A CVA can only be initiated under the guidance and supervision of a licensed insolvency practitioner. They will draft a proposal and present it to your creditors on your behalf. A minimum of 75% (by value) of creditors must agree to the CVA for it to be implemented. Once achieved, the CVA becomes legally binding on all parties involved.

If your creditors are growing hostile and threatening legal action, you might need to place your nursery into administration to safeguard the company from being forcibly wound up by creditors.

Once your nursery is in administration, it receives legal protection through a moratorium. This halts creditors from initiating or pursuing litigation proceedings, allowing the appointed insolvency practitioner time to devise a viable plan moving forward.

Administration isn’t a status a company can maintain indefinitely; eventually, it must exit administration. 

However, its exit can be managed through various avenues. A nursery may exit administration and immediately enter an alternative rescue procedure like a CVA, it may be sold to a connected or unconnected third party, or sufficient restructuring may allow the business to continue trading in its current form.

For certain companies, there might be no viable rescue options, necessitating the exit from administration and entering into liquidation.