The energy crisis: what next for UK businesses?
New Conservative leader Liz Truss has promised to protect consumers from price rises by shouldering some of the bill for their domestic energy usage.
For UK businesses, things are less certain.
At the time of writing, UK firms have only been promised help for six months. After that…there is no concrete plan as yet. While Truss has said that particularly vulnerable sectors, such as hospitality, retail and manufacturing, will be offered support beyond this initial six-month period, any concrete plans will only be announced after a three-month consultation on where support measures should be focused.
For many, it will feel like their business is in limbo. Indeed, we’ve been working with company directors who have already chosen to liquidate due to the devastating combination of soaring energy costs, rising inflation and plummeting consumer confidence.
The impact on small businesses
According to the latest Insolvency Service statistics (Q@ 2022), there’s been an 81% increase in corporate insolvencies in England and Wales, compared to the same period in 2021. A big chunk of this is a jump in the number of Company Voluntary Liquidations. The worst affected sectors include food, retail and construction.
As an example, The Fontmell, a country pub and bed-and-breakfast in Fontmell Magna, Dorset closed its doors with immediate effect recently after its owner declared it was “impossible” to run the business, which was facing a £58,000 rise in energy bills.
Owner John Crompton said the charges had “increased to such a point that we are no longer able to pass that cost onto our guests”.
Is liquidation the answer?
Despite more announcements coming in the next weeks and months, it might be that the financial difficulties your business is facing seem insurmountable and you simply cannot wait this long. If your business is approaching an insolvent position, you need to seek advice as soon as possible to get help in assessing your options. Because liquidation might not be the only answer.
It might be that, with the objective eye of a professional, you can make some changes to your current business that will enable you to adapt and evolve. Or, if you have debts that are currently unmanageable, a formal insolvency process – such as a Company Voluntary Arrangement – could help you find the breathing space you need to get back on track.
The important thing to remember is that you have options. If your company is struggling due to the current energy crisis, and you think you could benefit from our advice and guidance, call us on 01455 555 444 or email [email protected] and we will call you back.
How do I know if my business is insolvent?
To determine if your business is insolvent – as a limited company, sole trader or partnership – you need to look at your cash-flow and your balance sheet.
Does your cash-flow show that you have enough to pay every debt on time and in full in the foreseeable future? If not, this is a sign of insolvency.
Does your balance sheet show that your assets outweigh your liabilities? If not, this is another sign that you’re in an insolvent position.
As an individual, if you are unable to pay your bills, rent, credit cards or any other personal debt, this is a sign that you are insolvent.
What is the bankruptcy process?
Bankruptcy is a process you can choose to enter, or it can be forced upon you by one or more of your creditors. To begin bankruptcy proceedings, a petition for a Bankruptcy Order is presented to the court. A date will then be set for a further hearing where the debtor will be placed into bankruptcy and an official receiver (a Government insolvency-trained official) assigned to proceed with the bankruptcy.
How can I avoid insolvency vs bankruptcy?
The best way to avoid insolvency is to create a sound plan for your business or personal finances. Whether you’re a business, individual, sole trader or partnership, a cash-flow forecast will help you to stay on top of your outgoings and incoming funds so that you don’t get caught by surprise. We can help you make any adjustments needed to keep a positive balance.
Using a Debt Relief Order or IVA will help you avoid bankruptcy. We’ve outlined these in the ‘Difference between insolvency and bankruptcy’ article above.
What is an Administration?
During a Company Administration your business finances are put on hold to give you time to create a plan to get your business out of debt. A licensed insolvency practitioner will help you arrange better repayment terms for your debts and potentially sell off the unprofitable parts of your business. Another benefit is that it prevents your creditors from chasing you and from forcing a compulsory liquidation by filing a winding-up petition against your company.
What is a Liquidation?
In the case of an insolvent business, a liquidation closes your business and sells its assets to pay your creditors. The most common form of Liquidation in the UK is Creditors’ Voluntary Liquidation (CVL). In some cases, we can use a CVL to liquidate the unprofitable parts of your business and give you the chance to start afresh, without the debt. We call this a Start Afresh Liquidation.
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