KSA Group Turnaround Programmes™ KSA’s Complete Expert Guide to Turning Around or Restructuring Your Struggling Pub, Hotel or Inn Business Learn the trade secrets of the UK’s leading SME turnaround advisor and company voluntary arrangement expert; Keith Steven. Get thousands of pounds worth of Expert Advice for your company – free © CompanyRescue Ltd, KSA Group Ltd. and Keith Steven June 2017. Keith Steven is hereby identified as the author of the material in this programme in accordance with section 77 of the Copyright, Design and Patents Act 1988. No part of this programme may be reproduced stored in any retrieval system without the express permission of the copyright owner. Page 1 of 104 Turning Around or Restructuring Your Pub, Hotel or Inn Business™ 2014 Welcome to Keith Steven’s Expert Guide to Turning Around, Rescuing or Restructuring Your Pub, inn or hotel business Keith has been turning companies around since 1994. He has been involved with hundreds of companies and SME businesses in that time, all were facing insolvency, closure and bad debts. Plus the people involved faced possible loss of homes under personal guarantees and relationships / marriages as the longer term risks. Keith is an expert in innovative turnaround and insolvency techniques. With a national team of 20 turnaround specialists KSA can quickly identify solutions and drive recovery for struggling pub companies. This is only a general guide so: We have set out this guide to be as user-friendly as possible, but please remember whenever you have questions you can email them to us for a quick answer. We will answer all questions during our office hours of 8.30 to 6pm, 5 days a week. This email support service is FREE. [email protected] © Keith Steven, KSA Group Ltd. and CompanyRescue Ltd June 2014. Links Note: This PDF is rich in hypertext links. By holding down CTRL and clicking with your mouse you will open a web browser and link to our main website (100% safe). Of course if you read this in paper form the links are not live! Page 2 of 104 Turning Around or Restructuring Your Pub, Hotel or Inn Business™ 2014 Contents Introduction to this Guide .......................................................................................................... 4 What are the Definitions of Insolvency? .............................................................................. 7 KSA’s Cost Cutting Guide for businesses and companies needing to survive a Downturn. ................................................................................................................................... 12 Is My Business Viable for a Turnaround? .......................................................................... 14 Or just call KSA Group and we will start doing this for you. 0800 9700539 ....... 16 What if our Business is NOT insolvent? A Guide to Trading Out. .......................... 17 Trading Out - Frequently Asked Questions ....................................................................... 23 Time to Pay – Informal Deals with HMRC ......................................................................... 25 Refinancing the Company ........................................................................................................ 27 What if Informal Trading Out and or Refinancing is not an option? ....................... 32 A Guide To The Insolvency Options ..................................................................................... 33 Pre-pack Administration ........................................................................................................... 38 What About “Trading Administration? Is that Different”? ........................................... 44 What does KSA think the Best Solution To Rescue A Pub Company is? ............... 52 The CVA process a Detailed Guide ....................................................................................... 56 Company Voluntary Arrangements - Worries and Mistruths! .................................... 62 Dealing with Secured lenders – Banks, Leases, Factoring and CID. ...................... 65 HMRC, QIE and the CVA process. ......................................................................................... 68 Case Studies .................................................................................................................................. 70 Advantages v disadvantages of CVA and Liquidation for “ABC Pubco Ltd”. ........ 71 CVA v Administration Comparison Table for “ABC Pubco Ltd”.................................. 72 Wrongful trading, Preferences and the other rules to be aware of. ....................... 75 Directors Overdrawn Current Accounts? Why do they matter and what can we do with them? ........................................................................................................................ 79 Employees and CVA’s the process of redundancy in CVA and Pre-Pack ............... 83 Partnerships................................................................................................................................... 85 Partnership Winding Up ............................................................................................................ 89 Individuals or Sole Traders Running Pubs ......................................................................... 92 Individual Voluntary Arrangements A Simple Guide ..................................................... 92 Trading In Scotland as a Sole Trader? ............................................................................... 94 Scottish Trust Deeds .................................................................................................................. 96 What are the impacts of the various insolvency tools on the Pub licence? ......... 99 Page 3 of 104 Turning Around or Restructuring Your Pub, Hotel or Inn Business™ 2014 Introduction to this Guide Are you a publican or hotelier and facing financial problems? In the past, we have seen pubs closing at the rate of 29 per week around the UK so we know that the licensed trade and those that work within it are experiencing a torrid time. We have a great deal of experience helping publicans, and others within the licensed trade, rescue their businesses. Ask any publican why his business is struggling and we know we’ll need plenty of time, and a stiff drink, to sit and listen to the long list of reasons. Rising rent & business rates, fuel price increases, VAT rate increases, property prices, ever increasing duty on alcohol, the smoking ban, lower disposable income (as a result of higher household bills and wage freezes/reductions), the change in drinking trends and the relentless competition from off-licences, corner shops and supermarkets all combine to make the industry one of the biggest casualties in recent years. Those pubs without the means to offer a comfortable outside area to their smokers and those that do not put sufficient emphasis on their food trade are finding things particularly difficult. Consumer trends now seem to favour wine and spirit drinking and this has hit the more traditional ‘ale’ and ‘beer’ pub. In addition, as you’ll already know, a term known as ‘pre-loading’ appears to be increasing. This is where drinkers, mainly young adults, buy alcohol in shops and consume it at home before venturing out to a pub or bar later, and subsequently spending less in those establishments. And even more startling for those businesses reliant on drinkers, is that research shows that we are, as a nation, actually drinking less alcohol. The BBPA in conjunction with the Office for National Statistics calculate that average alcohol consumption is down 15% over the last ten years. Naturally, pubs have evolved over time and must continue to do so. They must adapt as society changes, continually look at new innovations and individually, they must strive to find that ‘special something’ that sets them apart from their competitors. Page 4 of 104 Turning Around or Restructuring Your Pub, Hotel or Inn Business™ 2014 Pubs are distinctly British and mean many different things to many different people. They are historical and traditional – in fact, part of the very fabric of our society. It is, therefore, vital that the great British pub survives. With fewer than 52,000 pubs still trading it is crucial those that remain viable are supported, by whatever means possible. Heavy snow and bad weather in recent years has dealt a bitter blow to many pubs, bars and inns, hotels and restaurants. What is traditionally a busy time of year for the licensed trade, and indeed heavily relied on by many, was, in the main, a disaster. Many publicans see increased revenue over the Christmas & New Year period as a means to try and claw back some of their earlier losses and give their businesses a boost before the quietest couple of months of the year. For many, this has failed to happen and there are publicans all around the country literally hanging onto their businesses by their fingernails. If your business is, one of the many, currently struggling to pay its debts on time then we may well be able to help. CompanyRescue is your personal guide to solving your problems. KSA Group provides this free and easy to use online support service for struggling, insolvent or fast growing businesses. Business rescue is our prime target wherever possible, but we can help liquidate, close, or pre-pack, non viable companies too. We'll stop you worrying, save your business money with our genuinely free initial advice, end sleepless nights and get you solving your business cashflow problems. Our friendly, expert advisors will start to fix your problems today. Call us free on 0800 9700539 and get some initial advice absolutely free! If you’d prefer to explore our website first you’ll find hundreds of pages of free advice and guides to some of the solutions we can provide. Page 5 of 104 Turning Around or Restructuring Your Pub, Hotel or Inn Business™ 2014 KSA Group – Our aim is to Rescue Viable Businesses! We help many thousands of people every year, they run different and diverse businesses. Most are fantastically hard working, many are innovative and creative, others are great with numbers or processes, and still more are great leaders. BUT all of the people we work with and help share ONE COMMON TRAIT: The Emotional Roller Coaster of insolvency. It’s still tough out there: in a recovering economy, we still face higher taxes, lower public spending, banks not lending. So it makes a lot of sense to protect your hard work, your monetary and time investment and your future by cutting costs, getting rid of surplus people and planning to be in business when the REAL turnaround comes. That could be late 2011 now. Let’s show you how your company or business WILL be here when that comes. SO, let’s start with a well used turnaround phrase, “You are where you are”. There is no time for blame or recrimination, it’s all about one thing now………. FOCUS ON SAVING YOUR BUSINESS “Running a pub business that’s approaching insolvency, or that’s actually insolvent is an emotional roller coaster; there are good days and bad, great successes and depressing failures. Remember, although you have fought many battles before on your own, now you have the UK’s leading CompanyRescue firm on your side and we know what you’re going through”! Keith Steven KSA Group; October 2012. Page 6 of 104 Turning Around or Restructuring Your Pub, Hotel or Inn Business™ 2014 What are the Definitions of Insolvency? You may think that having a cashflow problem in your company, partnership or sole tradership is not the same thing as being insolvent, or the business is not at risk so why do I need to focus on saving it? The UK insolvency law is built around the Insolvency Act 1986, Enterprise Act 2002, The Company Directors Disqualification Act 1986, and many examples of case law and practical application, through case law. So there is lots of law about! Plus all of this is regulated by the Government, regulatory bodies and committees. It is vitally important to understand that, if a company is insolvent, this results in a shift in the director’s duty of care from acting in the best interests of the shareholders, to acting in the best interests of the creditors’ or ensuring that the creditors position is maximised. If you trade as a partnership, sole trader then becoming insolvent puts you at risk of personal bankruptcy! If your pub company IS INSOLVENT whatever you do from now on you must act to maximise creditors’ interest, that’s the law. That usually does not HAVE to mean stopping trading. Clearly, if stopping trading was a serious option or your preferred route, then you may not have downloaded this programme! So although maximising creditors’ interests is paramount, it can have the added benefit of rescuing the company too. Just to aid your understanding please now read the following definitions of insolvency: There are three methods to determine insolvency: The Cashflow Test Simply - can the company or business pay its debts when they fall due for payment? For example, if you are not paying the tax deductions from employees for PAYE and NIC across to the HMRC on the 19th of the month following the month they were deducted, then the company could be insolvent. If your trade creditors, for example suppliers, landlords or accountants, sell to you on say 30 days terms and you regularly pay on 90-120 days, then the company or business could be insolvent. Page 7 of 104 Turning Around or Restructuring Your Pub, Hotel or Inn Business™ 2014 A director has a legal requirement to understand this issue. If he or she believes that the company has insufficient cash to pay its liabilities on time then they must take advice/action. The Balance Sheet Test Simply – does your company owe more than it owns as a company or are the company’s assets exceeded by its liabilities? If yes, then the company could be insolvent. As a partnership or sole trader do you have few assets but lots of debts? If so you could be insolvent. Many directors tell us that on a balance sheet test the company is not insolvent therefore they do not need to act. However, under the cashflow test above the company may still be insolvent. So you must act if it is. In our experience an apparently solvent balance sheet may include items that are overstated, such as fixtures and stock that are not really collectable. After deducting these items, many balance sheets become insolvent. So be prudent - you are legally required to present accounts to show a true and fair picture of the business. Legal Action Test If a creditor such as HMRC has obtained a County Court Judgment, this may demonstrate the company’s insolvency and the creditor may petition to wind up the company. (See compulsory liquidation). If a creditor has obtained a statutory demand for greater than £750 and it remains unpaid for more than 21 days, then the creditor may petition to wind up the company. (See compulsory liquidation). A creditor can also issue a winding up petition WITHOUT issuing a Statutory Demand, so they can go straight for the “jugular”. If a winding up threat has been made contact us without delay, we can defeat petitions if a viable rescue is put together quickly. If you are a sole trader the creditor can petition for your personal bankruptcy, without much warning. Page 8 of 104 Turning Around or Restructuring Your Pub, Hotel or Inn Business™ 2014 Summary If you believe that any of the above tests are positive for your business, it is vital that you and the board of directors take action to address the insolvent position. However, don’t panic, look carefully at all pertinent issues and consider the rest of this guide. Remember, if the company is insolvent you must act to maximise creditors’ interests. If there is no reasonable prospect of the following options happening: New or additional capital or finance being introduced to the business to return the balance sheet to a solvent position or to remove the cashflow pressures. A sale or acquisition of the company or business. A company voluntary arrangement or individual voluntary arrangement Then the directors may be accused of wrongful trading. If you are worried about this or your accountant has said he/she is concerned, then look carefully at directors’ disqualification. So if the company is insolvent you must act to MAXIMISE CREDITORS INTERESTS. Failure to do so could lead to personal liability! If you are a business trading whilst insolvent could lead to personal bankruptcy. Page 9 of 104 Turning Around or Restructuring Your Pub, Hotel or Inn Business™ 2014 Current problems for pub/hotel businesses: 1. Struggling to cut costs to match lower demand. You may have been a much bigger business in the boom period of 2006-2008 and employed many more people. How do you get rid of the overheads, how do you cut staff costs? Redundancy is expensive; landlords are often intractable, unless you are based in a flexible lease. 2. Cashflow crisis brought on by falling revenues and falling sales. Having been a larger business with much higher costs, you can find yourself with “LEGACY DEBTS”, from that period. 3. Slower sales. Look everyone is trying to preserve cash, so are you. You should definitely be running a daily cashflow forecast to ensure that you are aware when cashflow holes are looming. Please email [email protected] for a free easy to use daily cashflow. 4. HM Revenue & Customs debts and falling further behind with. The “de facto bank of choice” for pub companies, is what I call the HMRC! As directors we are supposed to pay VAT at the quarter ends. The day comes when the cash won’t meet that payment profile and the company or partnership / sole tradership starts to borrow from the “Crown” creditors. 5. Retention of staff, chefs or bar people. Or you may be hanging on to them in the hope that the turnaround is just around the corner. I like optimism, but it could be misplaced loyalty or optimism based on naivety – if sales and decent cashflow are not happening costs MUST be cut. 6. Finally, OVERDRAWN DIRECTORS CURRENT ACCOUNTS! This is when you have taken money every month and it has not gone through the PAYE scheme. Its tax efficient says your accountant, and true, dividend tax is much lower than income tax for high earners. BUT, when something happens and profits fall or losses are made you end up unable to pay dividends to cover the drawings, result? An Overdrawn Directors Current Account. This means YOU and your other directors OWE the company money as DEBTORS. If the company enters insolvency you will be forced to pay some or all of that back to the liquidator or administrator. Page 10 of 104 Turning Around or Restructuring Your Pub, Hotel or Inn Business™ 2014