In its much-anticipated 2023 Autumn Statement, the UK Government has committed to extending the relief available to the hospitality, retail and leisure sector. It has also announced that a business rates support package worth £4.3 billion will be available to support small businesses and the high street. However, the hospitality sector remains one of the most vulnerable, and it remains to be seen whether this additional support will be enough.
The number of company insolvencies in October 2023 increased by 18% compared to the previous year. In the last two quarters of this year, we saw the highest quarterly insolvency numbers since June 2009, and the highest number of creditor’s voluntary liquidations since records began.
The hospitality industry has seen a 66% increase in pub and bar insolvencies in the last twelve months. In September, JD Wetherspoon, one of the largest UK pub chains, announced plans to close and sell 11 venues, following the closure of 39 in 2022. The financial strain on the hospitality sector is unsurprising due to recent energy costs and interest rate increases, the rising inflation on food and drink, as well as the largest alcohol tax hike for almost 50 years in August this year. Collectively, this has left the sector exposed to a number of challenges which show no signs of slowing down.
UKHospitality, the trade body for hospitality in the UK, has described the current circumstances as a ‘crisis point’ for British businesses in the sector, calling on the Government to take more steps to tackle rising costs, provide more support to businesses, and to stem the level of inflation impacting the sector.
The Government’s commitment to extending the relief available to the hospitality sector is a welcome step towards supporting a sector facing particular pressure in the current environment. However, with the number of company insolvencies continuing to increase, more may be required than an extension of the current relief available.
It had been hoped that the financial aftermath of the pandemic would be the biggest hurdle for companies to overcome. Unfortunately for the hospitality sector, these difficulties show no sign of subsiding soon.
With an outpouring of concern about the stability of many businesses in the hospitality sector, it is important that directors are aware of the financial position of their company and have a strategy in place to deal with the current uncertainties of the hospitality sector.
How company directors can protect themselves and their creditors
If you are a director of a company which is facing financial difficulties, you should consider taking the following steps, to protect your own personal liability and creditors:
- When becoming aware of potential financial difficulties, seek independent advice from a lawyer or licensed insolvency practitioner.
- When deciding whether continuing to trade is a realistic option, take advice from a licensed insolvency practitioner on your options and decide whether a recovery strategy or insolvency strategy is more appropriate.
- Ensure your actions comply with your director duties, as you may be scrutinised at a later date by an office-holder if the company enters into a formal insolvency process.
- Only continue trading if it is the best course of action for creditors as a whole and take steps to minimise the loss to creditors.
- Maintain an open line of communication with all creditors.
- Have regular board meetings to discuss the company’s financial position, keep details and accurate minutes which set out each step taken to improve the creditors’ position or ensure their interests are not prejudiced. Keeping minutes will assist the board should they be required to explain their decision-making at a later date.
- Carefully monitor any demands for payment and legal proceedings served on the company. Make sure you immediately respond to them even if you are not in a position to pay, and take legal advice at the earliest opportunity.
- Ensure that regular updated realistic budgets, forecasts and management and trading accounts are reviewed (ideally weekly).
- Ensure accounts are being properly kept up to date.
- Conduct a full review of the costs and expenditure of the company. Consider what non-essential expenditure can be reduced or avoided at an earlier stage.
- Check what insurance cover the company has, check these policy documents carefully and seek guidance from your broker if necessary.
- If there is no reasonable prospect of avoiding insolvent liquidation, you should take immediate advice on instituting a formal insolvency procedure without delay.
If you are concerned about the impact of this or if you are concerned about the financial health of your company, please contact Aman Sehgal.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.