Hospitality Businesses Considering Closure

[Jos Jones]

I own four separate Ltd companies. One of which is a manufacturing business acting as a key supplier to three hospitality sites. The manufacturing business is viable and supported by shareholders. I'm considering closing two hospitality sites as the level of profitability is no longer worth it in the current climate.

The manufacturing co is a majority shareholder of all the hospitality Limited companies but the shareholdings are slightly different at each location.

I don't completely understand how closing these would impact the manufacturing business as the majority shareholder. We have a time to pay agreement at each site with HMRC as well as a bounceback loan without enough cash assets to pay them in full on closure so we may need to liquidate the companies.

Would that be problematic for company that is the majority shareholder?

Options as I see them
1. Liquidate the companies leaving only HMRC as creditors providing it isn't problematic for majority shareholding co

2. Write off any intercompany debt resulting in a positive net asset position and potentially sell the businesses (lease permitting)

Any advice would be greatly appreciated.

 

[Frank Wessely]

I own four separate Ltd companies. One of which is a manufacturing business acting as a key supplier to three hospitality sites. The manufacturing business is viable and supported by shareholders. I'm considering closing two hospitality sites as the level of profitability is no longer worth it in the current climate.

The manufacturing co is a majority shareholder of all the hospitality Limited companies but the shareholdings are slightly different at each location.

I don't completely understand how closing these would impact the manufacturing business as the majority shareholder. We have a time to pay agreement at each site with HMRC as well as a bounceback loan without enough cash assets to pay them in full on closure so we may need to liquidate the companies.

Would that be problematic for company that is the majority shareholder?

Options as I see them
1. Liquidate the companies leaving only HMRC as creditors providing it isn't problematic for majority shareholding co

2. Write off any intercompany debt resulting in a positive net asset position and potentially sell the businesses (lease permitting)

Any advice would be greatly appreciated.

Hi Jos Jones,

In both scenarios it appears that the manufacturing business (Topco) will be writing off the inter company debts. If that is not the case in scenario 1 please can you explain further.

In the liquidations the Bank will be a creditor for the BBLs. They will be paid under the Government guarantees, subject to any recoveries in the liquidations.

Unless Topco has itself given guarantees to any creditors of the subsidiaries such as suppliers or landlords and assuming that there isn't a Group registration for any VAT liabilities, there should not be any obvious financial impact on Topco other than the inter co debt and shareholding write offs.

A liquidator would be obliged to review the causes of failure and amongst other things, look at the movements on the intercompany accounts. It would also be necessary to look at the conduct / dealings of the directors. I suggest that it would be worth discussing those aspects in more detail.

I do not have enough information to comment on the broader tax consequences for Topco; that would be a separate conversation.

Clearly if you can obtain any benefit from selling the shares or the businesses/assets of the subsidiaries that would seem to be preferable but there are many moving parts to this and the devil will be in the details.

I hope this is helpful as an initial response. My contact details are below if you would like any further guidance.

Thanks.

 

[Lisa Thomas]

I own four separate Ltd companies. One of which is a manufacturing business acting as a key supplier to three hospitality sites. The manufacturing business is viable and supported by shareholders. I'm considering closing two hospitality sites as the level of profitability is no longer worth it in the current climate.

The manufacturing co is a majority shareholder of all the hospitality Limited companies but the shareholdings are slightly different at each location.

I don't completely understand how closing these would impact the manufacturing business as the majority shareholder. We have a time to pay agreement at each site with HMRC as well as a bounceback loan without enough cash assets to pay them in full on closure so we may need to liquidate the companies.

Would that be problematic for company that is the majority shareholder?

Options as I see them
1. Liquidate the companies leaving only HMRC as creditors providing it isn't problematic for majority shareholding co

2. Write off any intercompany debt resulting in a positive net asset position and potentially sell the businesses (lease permitting)

Any advice would be greatly appreciated.

Best to have a chat to a licensed Insolvency Practitioner to run through the options as your case is not a simple one.

Most IP's will offer a free initial chat, like Frank @Chris Callaghan and myself.

 

[Gyumri]

@frank Wessley has given some sound advice without knowing more.

If the hospitality companies have no assets such as a lease and need to throw in the towel and there are no other creditors other than HMRC vat and bbl then I would do nothing at all regarding them and wait for hmrc to wind them up or be struck off at companies house.

The shareholders are not responsible for their debts.

 

[Lisa Thomas]

@Gyumri - You are right - dissolution without first winding up is worth exploring depending on the specific circumstances however we don't have enough information here to clarify.

Assets and employee liabilities are big factors to consider.

A lease is very rarely an asset these days.

A company doesn't necessary have to only owe a BBL and HMRC to be abandoned.