Written ByKeith Steven
Managing Director
Keith is the author of the content on this comprehensive rescue, turnaround and insolvency website. He is the managing director of KSA Group Ltd - a specialist firm of turnaround and licensed insolvency practitioners. Keith was nominated for Turnaround Practitioner of the Year 2014 at the National Insolvency and Rescue Awards in 2014.
Following the travel restrictions, lockdowns and quarantines the travel industry has not seen a difficult time like this, since the second world war. Obviously, this is a very challenging time for all those concerned.
The situation now, for most companies, is they are being supported by the Government in multiple ways. Using government parlance, they have “thrown a protective ring” around companies and businesses.
One overriding problem the travel industry has, which is more prevalent is the issue of customer deposits. Most customers buy their holidays a long way in advance and so deposits are taken from customers. Faced with a sudden loss of income from new bookings there is immediate cash flow pressure when people want their money back for old bookings. New bookings have also dried up. Double whammy.
Most firms do not operate a trust account system and this means that deposits are not ringfenced for the customer if the event is cancelled. Rather, the payment is protected if the company fails or becomes insolvent by ABTA, ATOL, ABTOT, insurance companies and often by merchant service providers who facilitate the card payment on debit or credit cards.
This guide does not address that issue or how a refund credit note can be offered or the date for RCNs to be extended. Rather, it addresses what should struggling operators do, now that cash is drying up and an avalanche of refunds is due?
Most of the above provide cover for the customers in the even of a formal insolvency event such as company voluntary arrangement, liquidation, administration or pre-pack administration. These insolvency actions would automatically trigger a full refund of deposits of full payments made by the customer. Thus, it can be strongly argued that if the company simply doesn’t have the cash to pay the customers back then a full refund can only be provided if the company enters an insolvency process.
This would achieve the objective of maximising the interests of creditors as whole which is a UK legal requirement for directors of insolvency companies. We would strongly advise all company’s boards to consider all other options very quickly, and to speak to qualified insolvency advisors like KSA first, we can advise on these options.
Perhaps operators have tried to get refunds from airlines, hotels etc. but all are suffering similar problems of poor cashflow. Where no money can flow back to the customer due to suppliers not able to perform their end of the contract I,e hotels, flights etc then your customer can make a claim against their credit /debit card. Obviously, this could lead to clawback of funds from any designated accounts the operator holds for the merchant service provider. This can be a huge and very sudden blow to cash. An insolvency process can halt this cash outflow.
Cut Costs
During the lockdown the best thing to do is to try and reduce your costs as much as possible. So negotiate with the landlord, suppliers, cancel agreements that assume you are trading as usual or are able to use – you will be surprised at how many there are such as car insurance/tax, parking spaces, office service charges etc.
Cut employment levels. When furlough ends what will all of the returning employees be doing? You should start redundancy programmes as soon as you can
If there is insufficient cash to meet costs cutting and redundancy objectives you should consider using a company voluntary arrangement or administration which can terminate those payments, cut costs and restructure debt arrears.
Think about what your customers will want in the future
No-one can predict with much certainty what travel will look like in the future, but it is likely that staycations and small group holidays will come to the fore, at least in the short term. In fact, it has already been hinted that small holiday groups will be allowed.
If you run a travel firm and you have concerns about forward trading and/or the ability to refund clients, if requested to do so, and these are unaffordable, you should be seeking advice. There are options available to you and as a company director you are required to maximise the best interests of the creditors (your clients if they have made part or full payments in advance of travel) and understand the various mechanisms available to you.
We are currently advising various firms in the travel/leisure sector on the various scenarios facing them.
What is a CVA? | Company Voluntary Arrangements Explained
A CVA or Company Voluntary Arrangement is a legally binding agreement with your company's creditors which allows a proportion of its debts to be paid back over time. 75% of the creditors, by value, who voted need to support the proposal.
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Pre Pack Administration Process and Procedures
Pre pack administration is an insolvency procedure which allows an insolvent company to sell its assets to a buyer before appointing administrators. It’s a powerful, legal way of selling the business on to a trade buyer or third party.
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Worried Director What Will Happen To Me After Liquidation?
"A man in the pub said I cannot be a director of any other company if I liquidate my company. Is this true?"Actually, this statement is entirely false! Misconceptions like this frequently arise from individuals with limited understanding of the subject matter. Such misinformation can cause undue anxiety for directors considering liquidation, fearing it might personally affect them. Guess what? Listening to bar room experts, inexperienced accountants, or no insolvency specialist lawyers can stop decisions being made, this failure to make a decision is really what could land you in trouble. So how will liquidation affect me and how long does it take? Having a limited liability company means that the directors have little risk (or limited liability) if the company fails, as long as they have acted properly and acted in time. What is more, if as a director, you have been compliant and on the payroll for many years, you can actually claim redundancy from the government like any other employee. But, and it is a big but, if you fail to act in time, fail to act reasonably, fail to keep books and records, continue taking credit KNOWING that the company cannot possibly repay it, then you ARE at risk of personal financial loss or worse such as losing your house. So, act now and get help for your company and more importantly start reducing your own risks.Voluntary liquidation is the quickest most efficient way to deal with an insolvent company that has no future. As a director of an insolvent company, you are at risk if you do not act. This risk RISES the longer you don't act to put the company into liquidation.If you fail to act and the company is wound up by the creditors (compulsory liquidation) then the Official Receiver (OR) will be appointed to liquidate the business and he or she will investigate the activity of the directors and the business over the last 2-3 years. This is known as a conduct report on each director. If the OR can prove there was wrongful trading where, for instance, you have taken credit from a supplier or took deposits from customers when you knew that it was highly unlikely that you could pay them back, then you could be made personally liable.This is known as the "lifting of the veil of incorporation" that protects directors under limited liability. If this happens then you could made liable for PAYE, VAT and creditors monies from the time that you should have known the company had no reasonable prospect of surviving the problems it faced.Additionally, the directors may face disqualification proceedings under the Company Directors Disqualification Act 1986 for up to 15 years, they can be fined and may face the loss of personal assets like your home, or even personal bankruptcy.Look, if you as directors have acted naively you may not know that you have broken these laws, but now you do know, it is vital to ensure that you protect yourself as a director by acting quickly to cease trading and put the company into voluntary liquidation; or consider a company voluntary arrangement if the company is VIABLE if the problems are solved. What is Creditors Voluntary Liquidation and what does it mean for me? In short, liquidation usually means, the company's trading stops and it's assets are turned into cash or "liquidated".All other possible liabilities, like employment liabilities, landlord's rent or payments to lease companies are stopped. It really is the end of the company, but the "business" may survive if a phoenix is organised. Liquidation is a powerful way to END creditor pressure and let you get on with your life. What if I have signed personal guarantees? If you have signed personal guarantees or indemnities to lenders, then the liquidation could lead to them being called in if the bank cannot get its money back from the company. There is little that can be done about that, but you should not delay decisions on liquidation to try and prevent a PG being called in: just think what ALL of the company's debts landing on your shoulders would do. Also it should be noted that HMRC now rank ahead of floating charge holders in any liquidation since December 2020. Consequently, this may well mean that lenders that you have personally guaranteed will get less recovery hence exposing you more.All banks will agree a deal to repay the PG over time - provided you work with the bank to reduce their exposure.One great piece of FREE advice - always make sure that ALL tax returns, VAT returns and annual returns have been completed and sent in and that other "compliance" issues are dealt with wherever possible. These are important processes and will help protect you as individual directors. It shows that you have been acting properly. I have heard about directors being able to claim redundancy in liquidation If you have been employed by the company and made payments via PAYE then you will be able to claim redundancy from the government and this is in fact a very simple process (20 minutes to fill out a form and we can help with that) so there is no need really to employ a third party to make a claim. This process has been open to fraud so the HMRC are cracking down on operators that claim to be able to get money back when there is not enough "paperwork". It isn't worth the risk. If it sounds too good to be true then it probably is!You need to learn more about the options. This is clearly a general guide so, if you have any worries at all, please, just call us and we will talk you through the situation free and with expert guidance for your situation. Call one of our advisors or if you prefer, call our IPs (insolvency practitioners) now:Just one CALL will help relieve the stress and get you out of the mess.Why not call 08009700539 or 020 7887 2667 now?We could help you start the liquidation process today.(8.15am till 5.00pm; Out of hours call on 07833 240747, Wayne Harrison (IP) or Eric Walls (IP) on 07787 278527)Finally, please remember this: NO BUSINESS is worth losing your health, relationships, marriages or your children over. Act properly, take advice, get the problem sorted and then get on with your life. In a little while the stress will go and you can focus on other things that are more important.Want more information on liquidation? Get our new free 2023 Experts Complete Guide to Creditors Voluntary Liquidation that covers Bounce Back LoansWe are experts in liquidation, voluntary liquidation, administration, pre-pack administration, business rescue, corporate rescue and company rescue, we can help solve your problems but only if you talk to us. Call 0800 9700539 for help.or email us your worries at help@ksagroup.co.uk
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Notice of Intention To Appoint Administrators
A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.
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What Is A Winding Up Petition By HMRC or Other Creditor
A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.
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