An unfortunate side-effect of the Coronavirus pandemic has been the impact on businesses from a range of sectors.
According to an Office for National Statistics report, the number of UK employees on payrolls fell by 819,000 between February and November 2020, while redundancies surged to a record high of 370,000 in the third quarter of 2020.
So, what do businesses need to consider if the worst does happen, and a business needs to take steps to close down? Here, corporate and commercial legal expert Paul Matthews takes a look at the issues.
Will a formal insolvency procedure be necessary?
While all businesses are different, and many of the legal options available depend on the particular circumstances of the relevant business, there are some general points which may be applicable to many in this difficult scenario.
For instance, a business may be run by an individual or a group of individuals – i.e. a sole trader or partnership, or may be carried on through a separate legal entity such as a limited liability company.
If it is the latter, there may be the possibility of applying to Companies House to have the company struck off the register. However, the availability of this procedure is subject to various conditions and may not be available – for example, if it is not possible to discharge all creditors.
In such circumstances, a formal insolvency procedure, such as administration or liquidation, may be needed. These options are more complex and require specialist legal and financial guidance.
What considerations must be given to people and property?
Two of the most important aspects to consider when closing down a business are the staff employed and the premises occupied.
Redundancies are likely to be necessary if people are no longer required to do their jobs and there are strict legal steps to follow.
Employees have a number of rights, such as redundancy pay or time off to look for work, and employers must properly consult staff and inform them of what is happening.
Then it may be necessary to consider the position relating to business premises. For instance, if premises are leased, how long does the lease have left to run, and are there any personal guarantees involved?
What else should be considered?
There are many things that will need to be considered when closing a business, but a few of the other key ones are:
- The position with any stock and the impact of any retention of title clauses
- Are there any personal guarantees, such as to a bank?
- Insurance is also important – make sure that assets remain adequately insured during the process
- The impact on any continuing contracts, particularly if the business is carried on by an individual or individuals, or there are personal guarantees
- If it is a regulated business, there may be regulatory issues which need to be considered.
This is a highly complex and sensitive topic. Depending on the size of the business, many employees may be affected and everything must be done correctly. Ensure you seek proper legal and other professional advice at an early stage to ensure everyone is treated fairly, and the business is closed down in the most efficient manner.
Paul Matthews is Head of the Corporate and Commercial Team based at WHN’s Bury office. Paul advises clients on a range of corporate and commercial transactions including company and business sales and acquisitions, management buyouts and general commercial contracts. To contact Paul, call him on 0161 761 4611 or email paul.matthews@whnsolicitors.co.uk
