Just as the pandemic has thrown up both winners and losers in the business world, we are currently anticipating high levels of both solvent (MVLs) and insolvent liquidations over the first quarter of 2021.
Many MVLs have already taken place as business owners called it a day at various stages throughout lockdown. Some were quick to realise their time had come, deciding to cash in their chips at the outset in the face of so many uncertainties and effectively taking early retirement. Others required more thought and/or planning, perhaps organising a sale, whereas many were in no such position and/or took a more optimistic outlook. The particularly enterprising may even have set up companies to take advantage of the pandemic on a one-off or short-term basis.
Restrictive practices have gone on well beyond what was originally anticipated and have altered the plans of those who carried on. Some markets may have deteriorated massively in that time and future trading no longer be viable or simply too marginal to risk further erosion of their net worth.
Winding up a company via an MVL (Members Voluntary Liquidation) allows for the extraction of wealth as capital, rather than income, at much lower tax rates. Already weary at the thought of coping with IR35 and as we approach the New Year, many business owners are looking at 5 April 2021 with real fear that the Chancellor, in seeking to recoup the mind-blowing cost of the pandemic, will remove Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), which is currently 10% for the first £1 million and 20% thereafter.
For whatever reason, there is likely to be a strong rise in MVLs in the first quarter.
Many have suffered, but, while the stronger companies or older owners can realise remaining value and feast on their spoils as it were, others are not in that comparatively fortunate position and will need to carry on somehow.
Some sectors have been hit so hard by lockdown restrictions that when government support comes to an end they will have serious issues to address. Hospitality and retail are obvious candidates, but others caught up in supply chains will also be affected. With debt build up and ongoing trading still marginal, many will require drastic surgery.
In Scotland, the number of bars and restaurants seeing ‘significant’ financial distress leapt by 15% in quarter 3 of 2020, when compared with the same period in 2019. There was also a 6% rise in business distress since Q2 and over 1,300 hospitality businesses in trouble.
These companies (and not forgetting unincorporated businesses) will have hopefully restructured their operations and finances in all possible ways and engaging with stakeholders in the process, but ultimately, if sufficient turnover does not return quickly enough, cash runs out or the hole they are in is simply too big to dig their way out of, they will have no option but to take more formal action.
These businesses should contact restructuring professionals like ourselves without delay, either directly or via their existing professional advisers, so as to provide every opportunity to explore the options available. Things can be done to at least save the business and provide ongoing livelihood, via CVA, pre-pack admin sale or even liquidation. With family homes on the line in unincorporated businesses, or via personal guarantees, specialist input is absolutely vital before decisions are taken.
It is human nature to delay such difficult decisions and hope for the cavalry to come over the hill in some shape or form, but undue delay comes at a cost, limiting options and at worst, risking everything.
Initial advice is free, so, with nothing to lose and much to gain, the message is clear.
For a free, confidential consultation at a time and place convenient for you, please get in touch on 0141 222 2230