How to liquidate your Retail Company
Retail is a fast-paced, dynamic environment in which to operate and the sector typically has to adapt quickly to meet changing consumer demands, constantly evolving trends, and new shopping habits.
Some retail businesses in Scotland are financially unable to keep up with these changes, and consequently, risk a slide into financial distress and potential insolvency. This can lead to insolvent liquidation whereby the retail business has to close down.
So what problems does the retail sector in Scotland face, and are there any ways to avert financial crisis before liquidation becomes the only route?
Challenges facing retail businesses in Scotland
Cost of living crisis
The ongoing cost of living crisis has reduced discretionary spending as consumers focus on the necessities or seek out sale items and discounts. Offering value to customers is difficult when retail sector costs are also rising and profit margins dropping.
Transitioning online
The Covid-19 pandemic badly affected the retail sector and changed consumer shopping habits permanently. This required retailers to consider moving their enterprise online or offering an online option in addition to a bricks and mortar outlet.
Can Scottish retail businesses in financial distress be rescued?
Fortunately, Scotland and the UK as a whole offer a range of official routes away from insolvency for retailers, including formally renegotiating with creditors to make their debts more affordable.
Securing the right type of finance can also make a significant difference when cash flow is poor as various flexible alternatives to bank loans now exist – a retail-specific option being a merchant cash advance arrangement.
Liquidation for solvent retail businesses
Liquidation is also an option for solvent retail businesses where the owner might want to retire, for instance, or simply close down their shop. The procedure that’s followed in this case is called Members’ Voluntary Liquidation.
If there’s more than £25,000 available in distributable profits it’s likely to be the most tax-efficient route as monies extracted from the business are taxed as capital, with a further reduction in tax liability potentially available if the owner can claim Business Asset Disposal Relief (BADR).
Liquidation for insolvent retail businesses
Creditors’ Voluntary Liquidation (CVL) is the process used to close down an insolvent business. When a retailer has entered insolvency they must stop trading and seek assistance from a licensed insolvency practitioner (IP).
This fulfils the director’s duty to their creditors and lowers the likelihood of misconduct allegations being made against them. The appointed liquidator then sells business assets that haven’t been put forward as security for a loan and the proceeds of the liquidation sale are used to repay unsecured creditors as far as possible.
Where to go for professional liquidation help
Scotland Liquidators provide professional independent liquidation support for Scottish retailers and can help directors close down their business in the correct manner whether it’s solvent or insolvent.
We have extensive commercial experience and fully understand the issues facing the retail sector in Scotland. With our expertise and technical knowledge we ensure that business owners follow the correct path.
