How to liquidate your Gym
The ever-evolving fitness industry is having to adapt to using new technologies, whilst following emerging trends and meeting new customer demands. This can create significant financial pressure for some gyms in Scotland, and limit their growth.
The global pandemic was devastating for gym businesses and created a very difficult environment to operate in. Although many have recovered and improving health and fitness is a common goal, attracting new members to a bricks-and-mortar gym can be challenging with the new digital fitness options available.
Soaring energy costs also place considerable pressure on cash flow but being an essential outgoing, it’s difficult for gym owners find a workable solution. So what do insolvency and liquidation mean for gyms in Scotland?
What is insolvent liquidation for Scottish gym businesses?
Insolvency means that a business cannot afford to pay its ongoing liabilities, such as suppliers and wages, as the bills become due. Once insolvent, directors must cease trading and get in touch with a licensed insolvency practitioner (IP) for support and guidance.
If there are no other alternatives to liquidation, the company enters a process called Creditors’ Voluntary Liquidation, or CVL. The IP sells the gym’s assets at auction and the funds generated are used for the benefit of creditors. The company then closes down permanently.
There are specific benefits for company directors in this situation, however, even though their business is closing. CVL offers control over who is appointed as liquidator, and redundancy pay may also be available if directors are eligible to make a claim.
What is solvent liquidation for gyms in Scotland?
Liquidation can also be used to close solvent gym businesses. In this instance, the proceeds from the sale of assets are distributed to the shareholders once all the company’s liabilities have been paid.
This procedure is called Members’ Voluntary Liquidation (MVL) and is typically suitable for businesses that have retained profits of £25,000 or more. As the monies extracted are taxed as capital rather than income, it’s also a tax-efficient way to close a gym.
Can an insolvent gym be rescued?
Cash flow difficulties commonly lead to insolvency, and obtaining professional assistance is crucial if the business is to move away from the threat of liquidation. The good news is that even when a business is insolvent, it can recover with the right support and continue trading for the long term.
Scotland and the wider UK operate a robust insolvency regime that includes options for business rescue and recovery. A recovery procedure, such as a Company Voluntary Arrangement (CVA), may be suitable if the gym’s financial difficulties are temporary and a licensed IP believes the business to be viable for the future.
Various alternative finance options may also provide the funding needed to recover over time, a good example being invoice finance. Scotland Liquidators provide sector expertise to gym businesses in Scotland and help company directors follow the correct procedure.
