A3 Premises Establishment Closing Due to Debt

Restaurants

Plenty of restaurant owners opt for limited company status since it offers them lower financial liability because it establishes a separate legal entity. Sole traders and partners, however, are held personally liable for their business debts. It’s widely known that 10% of all new restaurants either fail or close their doors at some point during the first year of trading and face insolvency as a result.

Bars and Pubs

One of the most volatile industry sectors in the UK is Bars and Pubs. Not only is this market well known for its ease of setting up a business, but also for the common occurence of closures and changes in ownership.

This bar and leisure sector is divided into these segments:

* Independent high street bars

* Branded chain bars

* Bar food restaurants

* Hotel bars

* Upmarket, Chef/patron restaurant / bars

The borders between these markets continues to become increasingly blurred. For example, some bars sell high quality food, pubs that are closer to being a bar and “free house” bars.

Hotels traditionally held their bars to be a necessary service, but typically a loss leader that they did not expect to profit from. This trend is shifting, though, and in the last decade hotel owners have developed some very successful bars.

The shifting bar industry sector and its ever changing commercial landscape has led to an increase in insovlences, bankruptcies and company liquidations.

Closing Down a Bar

Once you have decided to close your bar business, you need to inform various individuals and organisations of this decision, telling them the time frame involved. This could involve a great deal of planning and organizing depending upon the size and type of your bar business. There will also be details that differ depending upon your business status: partnership, sole trader or limited company. If there are multiple owners or investors involved, closing you bar business can be especially stressful.

Closing a Nightclub

When your club or nightclub has mounting debts and fails, owners often end up facing the prospect of company and personal insolvency.

Since being a limited company offers financial liability by establishing a separate legal entity, most club and nightclub owners choose LTD status. Those who are willing to be personally liable for their business debts choose to be sole traders or take on partners.

It is commonly known that 10% of all new clubs will fail or close down within the first year of their trading and as a result, face insolvency. Depending upon the status that the club owners have chosen to trade under, such as Sole Trader, Partnership or Limited Company (LTD), the method of treating this insolvency will be different.

“CVL – Liquidation” is the most common insolvency procedure for an LTD and is often referred to as “Phoenix”. As a director of an LTD, this liquidation allows the company’s unsecured debts to be written off so that you can start again.

Closing a Pub

Upon the opening of any new pub, the owners must make a decision about the pub’s legal status and carefully consider the issues involved. In this section we will look at the main choices available, including limited company (LTD), partnership or sole trader. We will also look at the impact that this choice will have should the business close or face insolvency.

The majority of those who open a pub have worked their way up from a position as bar person to running a pub of their own. This career structure is most effective because it means the manager has experience and therefore has a higher chance of having developed both a strong business and management skill set.

Dealing with the Alcohol License

The majority of A3 premises have a license which allows them to sell alcoholic beverages on site. This license gives the the club the right to serve alcohol up to certain times and it is crucial to protect this license in order to maintain the validity of the establishment itself.

By making an application to the Magistrate’s Court for a protection order a business can obtain temporary permission to sell alcoholic drinks pending full transfer of the license. A protection order lasts either transfer sessions of approximately three months or a maximum of two periods.

It’s important to keep in mind that an application for a transfer order usually triggers visits by  environmental health officers and fire officers. These individuals hold the power to demand work be carried out in order to bring the club up to acceptable standards. When considering a decision to continue trading, you want to take into account this potential capital expenditure because it can involve significant sums of money.

Case Study of Restaurant Business Failure

This case involves an unnamed individual we will call Mr. Durano, an Italian who moved to the UK in 1994. He had worked for a reputable restaurant in London for 10 years as a Head Chef and had always had a strong desire to open his own restaurant. When the opportunity to make this dream come true arose in 2004, he and his brothers opened a restaurant in Middlesex that focused on fine Italian dining.

The Durano brothers had to sign personal guarantees to cover the risks posed by finance companies in order to acquire funding and finance to pay for the catering equipment. After forming a Limited Company, they began trading but they were forced to close down after only 18 months when the property freeholder decided to redevelop the land the restaurant’s building stood on.

Mr. Durano had to initially arrange to liquidate the company by opting for a “Creditors Voluntary Liquidation (CVL)”. In both England and Wales, a CVL is the most common form of liquidation used and it brings the operation of the company to an end. This method is employed for companies that are simply not viable any longer, companies that have run out of cash and can no longer afford to pay their liabilities at the scheduled times.

Unfortunately, the assets of the Duranos’ restaurant were not valuable enough to eliminate the debt owed by the finance companies and that meant those companies turned to Mr. Durano himself in an attempt to recover the outstanding £35,000 debt. Instead of the bankruptcy that was being threatened, Mr. Durano sought advice from a qualified Insolvency Practitioner (IP) and ended up choosing the far more flexible and less stressful Individual Voluntary Agreement, a sensible alternative to bankruptcy.