How to liquidate your Hotel or Hospitality business
The hotel and hospitality sector in Scotland is facing increasingly complex financial issues with compromised cash flow causing insolvency in many cases. This can lead to company liquidation for some businesses, which means they close down for good.
The sector is an invaluable part of Scotland’s tourism industry and whilst providing extensive employment opportunities to local people, staff shortages are making it difficult for hotels and other hospitality venues to operate with growth in mind. In fact, many in the sector are facing severe financial decline.
Issues facing the hotels and hospitality sector in Scotland
Unfilled staff vacancies
Without sufficient staff, hotels cannot operate optimally or offer the services they would provide in economically healthy times. This limits income opportunities and causes the business to shrink or remain static rather than expand.
Rising supplier costs, food, and utilities
The increased costs of operating in the sector, including energy and food and rising supplier expenditure, make it challenging to budget effectively – this is important to keep control of cash flow and prevent cash shortages.
Cost of living crisis
The cost of living crisis is limiting consumer spending on non-essentials and negatively impacting the hotel and hospitality sector as a whole. Falling visitor numbers and the after-effects of Covid-19 make it difficult to continue in business with any certainty.
What does liquidation mean for Scotland’s hotel sector?
Liquidation can follow a slide into cash flow insolvency, which means a business cannot pay its bills as they become due. Insolvent liquidation leads to business closure via a process called Creditors’ Voluntary Liquidation (CVL).
When a company has a healthy cash flow and can pay its bills, another liquidation procedure can ensure that it’s closed down in an orderly manner – if the owner wants to retire, for example – and this process is called Members’ Voluntary Liquidation (MVL).
Creditors’ Voluntary Liquidation for hotels and hospitality businesses
The purpose of CVL is to protect the financial interests of company creditors and prevent unnecessary losses whilst closing a business down. It also ensures the business’s directors proceed as required under insolvency law. The procedure is conducted by a licensed insolvency practitioner (IP) who winds up the company’s affairs and repays creditors as far as possible from the sale of assets.
Members’ Voluntary Liquidation for Scotland’s hotel and hospitality sector
MVL is also administered by a licensed IP but in this case, the company is solvent. This means that shareholders receive a distribution from the business. This is subject to Capital Gains Tax (CGT), which offers significant tax advantages for hotels and hospitality businesses that have £25,000 or more in retained profits.
What if the hotel or hospitality business can be rescued?
In some instances, an insolvent business can be rescued and Scotland offers a range of potential recovery options. These include Company Voluntary Arrangements (CVAs) and company administration, which offer hope to business owners struggling to survive economic decline.
Whether a business is viable for the future must be assessed by a licensed professional. Scotland Liquidators specialise in helping directors of solvent and insolvent hotels and hospitality venues to close down and can provide the professional advice needed in this situation.
