How to liquidate your Bar and Restaurant
The bar and restaurant sector in Scotland drives economic growth and is a significant employer, bringing together local communities and boosting tourism in rural areas as well as the major cities.
The sector is experiencing serious issues, however, which threaten to create unmanageable trading conditions for many businesses. From the increased cost of food and energy to staff shortages, insolvency is an ongoing threat for bars and restaurants in Scotland.
Having recovered to some extent from the enforced closures of lockdown, some businesses continue to struggle to make ends meet. So what does insolvency and liquidation mean for this sector?
Liquidation in Scotland’s bar and restaurant sector
Liquidation for insolvent bar and restaurant businesses
Creditors’ Voluntary Liquidation (CVL) is an official process that ensures businesses close down according to insolvency law. Failing to do this can leave company directors open to allegations of misconduct.
A licensed insolvency practitioner (IP) is appointed to administer the process and sell the business’s assets at a liquidation auction. The funds generated are then used for the benefit of creditors. CVL limits the likelihood of wrongful trading accusations being made but also offers the potential for directors to claim statutory redundancy pay.
Liquidation for solvent bars and restaurants
Another type of liquidation, called Members’ Voluntary Liquidation (MVL), may be suitable to close solvent bars and restaurants – if the owner wants to move into a different industry, for example, or is approaching retirement.
MVL can be a good option if the business has profits of around £25,000 or more to distribute as funds extracted are subject to Capital Gains Tax (CGT). The procedure is conducted by a licensed IP who winds down the business’s affairs and closes it by striking the company name from the official register.
What are some of the problems affecting bars and restaurants in Scotland?
Rising operational costs
The increased cost of food and energy has been challenging for many businesses in the sector, forcing them to put up prices at a time when households are focusing more on essential items due to the high cost of living.
Staff shortages
Ongoing staff shortages limit growth and profitability in the bars and restaurants sector as businesses are forced to reduce their opening hours or shrink their offering of food and drink.
What if the pub or restaurant is insolvent but viable?
Company Voluntary Arrangement (CVA)
Company Voluntary Arrangements (CVAs) formally restructure a business’s debts within a legally binding agreement with creditors.
Company administration
Entering company administration offers time to assess the business’s future without the threat of a creditor winding up the bar or restaurant.
Scotland Liquidators specialise in helping company directors in the bar and restaurant sector to close their business correctly. We understand the challenges being faced and offer independent sector expertise.
