How to liquidate your Sports Club
Sports clubs in Scotland provide a valuable outlet for all generations to improve their fitness whilst increasing their opportunities for social interaction. They contribute greatly to local communities, providing a safe place for younger people to meet and typically offer activities that have broad appeal.
Some sports clubs are experiencing financial difficulties, however, and are at risk of becoming insolvent due to lack of funding, poor cash flow, and the cost of living crisis that’s limiting membership.
Access to flexible funding that supports cash availability and allows the club to operate with more freedom is vital in these circumstances. It can provide a strong foundation to attract new members as well as offer the club the potential to grow.
Without professional intervention, however, insolvency can lead to liquidation and closure so what might this mean for sports clubs in Scotland?
What does insolvency and liquidation mean for the sports club sector?
Cash flow insolvency means that a business cannot pay its day-to-day bills because there isn’t enough cash available at the right time. When any business becomes insolvent the directors must stop activities and obtain guidance from a licensed insolvency practitioner (IP).
In some cases, a sports club may be viable for the future, but if liquidation is the only option it’ll have to close down permanently. Another form of liquidation is suitable for sports clubs that are solvent but need to close for other reasons, such as the owner’s pending retirement.
Creditors’ Voluntary Liquidation (CVL) for insolvent sports clubs
Creditors’ Voluntary Liquidation must be administered by a licensed insolvency practitioner (IP). It prevents creditors from suffering the unnecessary financial losses that often occur when an insolvent business continues trading.
The sports club’s assets are valued and sold at a liquidation auction to generate funds for creditors. CVL enables directors of the club to meet their legal obligations to creditors but it can also offer them the opportunity to claim director redundancy pay.
Members’ Voluntary Liquidation (MVL)
Members’ Voluntary Liquidation is the procedure used to liquidate the assets of a solvent sports club and close it down in a tax-efficient manner. Again, it must be conducted by a licensed IP and is a process that’s typically suitable for sports clubs with retained profits of £25,000 or more.
Distributions from an MVL are subject to Capital Gains Tax (CGT) rather than income tax, and a shareholder’s tax liability may be further reduced by claiming Business Asset Disposal Relief (BADR) if they’re eligible.
Rescuing insolvent sports clubs in Scotland
If a club’s financial difficulties are viewed as short-term by an insolvency practitioner, it may be possible to rescue the business – perhaps using additional funding or by formally restructuring the club’s debts within a Company Voluntary Arrangement (CVA).
Scotland Liquidators understand the problems that sports clubs in Scotland have to deal with and the underlying causes of financial decline in the sector as a whole. We help company directors of solvent and insolvent sports clubs by providing independent advice and helping them close down their businesses correctly, whether they’re solvent or insolvent.
