The UK’s hospitality sector is facing a crisis with insolvencies at their highest since the 2008/09 crisis.
Rising costs, changing consumer habits, and economic uncertainty have led to a surge in restaurant insolvencies, with recent research predicting over 6,000 restaurants are expected to close within the next year.
If you own a bar or restaurant struggling with financial distress, it’s crucial to understand your options and take action before it’s too late - and that’s exactly where we come in.
At McAlister & Co, we specialise in helping businesses navigate insolvency with clarity and confidence. Whether you want to restructure, sell, or close down in the most effective way, we’re here to help you navigate the rise in restaurant insolvencies and guide you through the process.
Why are restaurant insolvencies on the rise?
The hospitality industry has always been challenging, but recent years have brought unprecedented pressures:
- Rising costs: Energy bills, food prices, and wages have all increased significantly. Many businesses struggle to pass these costs onto customers while remaining competitive.
- Changing consumer habits: Cost-of-living concerns mean that more people are choosing to eat at home rather than dine out.
- Debt burdens: Many businesses took on government-backed loans during COVID-19, and repayments are now due.
- Business rates and rent: High fixed costs, combined with falling footfall, make it hard to turn a profit.
- HMRC pressure: Tax debts, particularly unpaid VAT and PAYE, are a major cause of insolvency.
With these challenges mounting, it’s no surprise that restaurant insolvencies are increasing. If you’re facing financial distress, acting quickly can mean the difference between survival and closure.
Restaurant insolvencies: understanding the options available
1. Improve cash flow and cut costs
Before considering insolvency, take a close look at your financial position. If you’re struggling with cash flow, ask yourself:
- Are there unnecessary expenses that can be cut?
- Can you negotiate better terms with suppliers or landlords?
- Are you pricing your menu effectively to cover costs?
- Can you implement promotions or special events to boost revenue?
If you’re struggling with tax debts, HMRC may offer a Time to Pay arrangement, giving you more time to settle arrears. However, you must act before enforcement action begins.
2. Informal agreements with creditors
Many suppliers and landlords would rather receive partial payments than see a business close altogether. If you have manageable debt but need breathing space, an informal repayment plan could help.
Key steps when suggesting an informal agreement include being transparent about your financial situation, offering a structured repayment plan, and ensuring you can commit to agreed payments - failing to do so could damage your business further.
3. Company voluntary arrangement (CVA)
If your business is viable but struggling with debts, a CVA can provide structured debt repayments while allowing you to continue trading.
A CVA is a legally binding agreement between your business and creditors that typically lasts between three and five years and protects you from legal action while repayments are made.
It is an ideal solution if you believe your business can recover with the right financial restructuring. However, it requires approval from 75% (by value) of your creditors. Learn more about the CVA process here.
4. Administration
If you need immediate protection from creditor pressure, going into administration can give you time to restructure.
When you enter administration, an insolvency practitioner takes over to assess your business. Trade can continue while restructuring options (such as selling the business) are explored, and if viable, the business can be sold as a going concern, preserving jobs and goodwill.
5. Pre-pack administration
Another potential option for restaurants and bars facing insolvency is a pre-pack administration, which involves selling your restaurant’s assets to a new company, often run by the same directors.
A pre-pack administration allows you to restart without historic debt and ensures a smooth transition with minimal disruption. Pre-pack sales can be an effective way to save a business, but strict regulations must be followed.
6. Creditors’ voluntary liquidation (CVL)
Finally, if you decide that your bar or restaurant is no longer viable, liquidation may be the best option. With a creditors’ voluntary liquidation, the company ceases trading, and assets are sold to repay creditors.
Any remaining debts are written off (unless personally guaranteed), and once the business is officially closed, the directors may be able to start a new venture, depending on their circumstances.
How McAlister & Co can help you navigate restaurant insolvencies
At McAlister & Co, we specialise in rescuing and restructuring businesses facing insolvency. Whether you need expert advice on a CVA, administration, or liquidation, we provide clear, practical guidance to help you make the right decision.
If your bar or restaurant is struggling, don’t wait until it’s too late. Contact us today for a free, confidential consultation to discuss your next steps. Let’s find the best solution for your business - before last orders are called.