Closure and rescue options for restaurants

To safeguard your hospitality business from increasing expenses and shifting consumer habits, it’s vital to grasp formal insolvency processes. 

These include options like Company Voluntary Arrangement (CVA), Company Administration, or Creditors’ Voluntary Liquidation (CVL). They can aid in rescuing or concluding your restaurant operations.

A Guide to Rescue, Recovery, and Closure Options for Restaurants

The restaurant industry is famously tough, with numerous establishments struggling to distinguish themselves and try to survive in a more and more competitive market. 

If you sense your restaurant is edging towards insolvency, or if you’re already aware of its insolvent state, seeking professional guidance should be your top concern.

Professional insolvency advice not only enhances your restaurant’s prospects for a successful revival but also shields your personal standing in case the business cannot sustain its operations.

How can you wind up your restaurant via liquidation? 

If you’re worried about the future of your restaurant, seeking expert advice in advance can position you optimally, enabling you to make well-informed decisions about your next course of action.

This might involve devising a rescue and recovery strategy, permitting you to sustain operations while reorganising your restaurant’s finances. Alternatively, if the situation has rendered the restaurant insolvent beyond redemption, a formal closure process like Creditors’ Voluntary Liquidation (CVL) could be considered.

Whether your restaurant can be rescued or if closure is inevitable depends on various factors. 

These include its financial state before the pandemic, the local restrictions it faced or might face, and its capacity to transition operations profitably to delivery or collection services.

A licensed insolvency practitioner can guide you through your options. If liquidation is deemed necessary for your restaurant, they will clarify its implications for your business, creditors, and staff.

A CVL is a formal insolvency procedure that requires engagement with a licensed insolvency practitioner. They will identify company assets, distribute proceeds to outstanding creditors, and oversee the orderly closure of your restaurant.

After your restaurant undergoes liquidation through a CVL, any remaining company debt will be forgiven. Unless you’ve given a personal guarantee for this borrowing, you won’t be required to cover the shortfall.

Exploring All Effective Processes To Rescue Your Restaurant

If your restaurant is facing financial challenges such as cash flow pressure and declining income, there’s still hope. While some restaurants may close due to financial strain, many can be rescued with a timely and suitable plan.

Reviving a struggling restaurant can take various forms, depending on the nature and extent of the challenges it confronts.

Depending on the underlying issues, your restaurant might need a capital infusion to improve cash flow and cover ongoing expenses promptly. 

Our team of commercial finance specialists can collaborate with you to evaluate the necessary funding and your restaurant’s capacity to repay the loan.

We’ll explore the entire market to secure funding that’s affordable for your company, both presently and in the future. This will enable you to launch your operations with a strong financial foundation.

If your existing issues have led to arrears with creditors – be it trade creditors, your bank, HMRC, or a mix of all three – engaging in negotiation can alleviate strained relationships. It can also enhance cash flow and offer a degree of certainty moving forward.

Depending on the magnitude of your debts, negotiation may occur informally or through a formal agreement like a Time to Pay Arrangement with HMRC, or a Company Voluntary Arrangement (CVA), which is a structured insolvency process.

A CVA offers a financially strained company the opportunity to reorganise its debts with different creditors by allocating future earnings to settle existing obligations. To pursue a CVA, you must convince creditors that your business is financially sustainable in the long run and can honour the CVA’s duration, typically spanning 3-5 years.

Your designated insolvency practitioner will formulate a proposal outlining your restaurant’s financial status and a suggested repayment scheme. Creditors will then vote on these proposals. 

A minimum of 75% (by value) consent is required for the agreement to become legally binding on all parties involved.

Alternatively, opting for company administration might be preferable, especially if your restaurant is under increasing creditor pressure and mounting debt. When a company faces potential litigation, such as creditors filing a winding-up petition, time becomes crucial.

Failure to act promptly could result in your restaurant being compelled into compulsory liquidation. However, acting too hastily may lead to impulsive decisions that might not serve the best interests of your restaurant or your creditors.