Only 50% of pubs are operating at a profit
Licensed Insolvency Practitioners Antony Batty & Co report on how a restructuring procedure could help protect pubs against closure.
Research by the British Institute of Innkeeping (BII) shows that only 50% of UK hospitality businesses, including pubs, are making a profit. This is despite two thirds of respondents reporting that sales were back to pre-pandemic levels. The research demonstrates that nothing is getting any easier for pubs and bars, as pub closures increase, with the main cause of this being significant cost increases and high energy costs. Pub closures alone rose by 90% in the first 6 months of 2022, whilst more than 2 pubs a day closed in the first 6 months of 2023 – more than for the whole of 2022.
There is, however, a growing trend of pubs being run through an operating company separate from the lease, freehold or tenancy. In this way, if insolvency strikes, it is possible for some landlords to wind up the operating company, whilst still retaining the pub itself, with the opportunity to start again, subject to legal conditions.
As Elaine Wilkins of Antony Batty & Company, Bournemouth, says:
“We are seeing a number of Liquidations as a result of inflation and a lack of staff hitting businesses which were already weak following the pandemic. Monthly energy bills going up in some cases from £2,000 to £7,000 (and more), for example, have been the final straw.
Interestingly, an increasing number of pubs are being run through an operating company which is separate from the ownership of the lease, tenancy or freehold. As a result, some operators have been able to wind-up the operating company yet retain the actual pub, raising the possibility of starting again.
Such operating companies are generally given a licence to run the pub business from the “landlord” who may be the freeholder, leaseholder or tenant. The operating company employs staff, buys food & drink, pays business rates, contracts with energy suppliers and receives all trading income.
On insolvency, the operating company’s only assets are generally wet and dry stocks. Fixtures and Fittings and goodwill are generally owned by the “landlord”. However, it is not uncommon for the same individuals to be both “landlords” and directors of the operating company.
A word of warning, though. The directors of such pub operating companies, are, however, restricted from being a director of another company with a similar trading name and must take great care to keep the different enterprises separate and at arms-length.
So, If XYZ Op Co Limited trading as, say, ‘The Queen Victoria’ pub goes into Liquidation, section 216 of the Insolvency Act 1986 prohibits (with certain exceptions) the same directors from forming a New Op Co Limited which then trades as the ‘The Queen Victoria’.“
Other Options to consider if Insolvency looms
There are other options for directors to consider:
- Negotiating a Time to Pay Arrangement with HMRC. These structured payment plans with HMRC give businesses time to pay back what they owe.
- Additional Finance. Thuis is all about having the knowledge to find lenders who could help find the right deal for extra funding.
- A Company Voluntary Arrangement. If creditors are demanding the money they are owed, the CVA process allows for an insolvency practitioner to propose to them a structured repayment plan for a percentage of the debts. This means part of the debt can be written off and liquidation avoided. A CVA is a recovery process that can buy a company time to turn things around.
The best solution will emerge once a detailed examination of a business’s affairs and prospects has been undertaken by an Insolvency Practitioner.
For help and advice if facing insolvency, please contact us in Bournemouth for a FREE initial discussion on 01202 923009.