Family businesses are a cornerstone of the UK economy. They outnumber all other private sector firms, employ millions, and contribute significantly to national output. But when a family-run company faces financial difficulty, the challenges go far beyond the balance sheet, with impacts on relationships, succession plans, and even personal assets. In this article, we look at the unique aspects of family business insolvency, and what directors should consider when their firm starts to struggle. To illustrate the challenges and outcomes, we include four recent examples of how family-run companies were unable to navigate distress and the difficult outcomes they were left with.
What is a Family Business?
There’s no statutory definition in UK law, but according to the Family Business UK , a family business is one where:
- The majority of votes are held by the founder or family members
- At least one family member is involved in management
- In listed firms, the family holds at least 25% of voting rights
This includes everything from local builders and family retailers to regional manufacturers and farming businesses. What they have in common is a strong link between ownership, control, and family relationships – typically extending across generations.
How common are Family Businesses in the UK?
There are around 5.3 million family businesses in the UK, making up over 93% of the private sector. They employ more than 14 million people and collectively contribute £637 billion in Gross Value Added (GVA), with a combined annual turnover of £2.8 trillion.
These businesses are most prevalent in construction, real estate, professional services and retail. The majority are SMEs, but family ownership also features prominently at larger national firms.
What makes family firms vulnerable to Insolvency?
- Strong emotions, slow decisions
The Centre for Family Business, Lancaster University Management School points out that loyalty to long-serving staff, resistance to downsizing, and fear of legacy loss can delay tough—but necessary—financial decisions. This emotional investment can mask distress signals, increasing the risk of formal insolvency.
- Succession uncertainty
According to PwC’s UK Family Business Survey 2023, nearly 40% of family-run businesses lack a formal succession plan. When leadership transitions are ambiguous or contested, businesses often drift strategically and operationally.
- Limited access to capital
Many family firms avoid outside investment in order to retain control. That makes them highly reliant on retained profits or loans backed by directors – raising insolvency risk when cash flow tightens or debt repayments bite, and also the risk of a Personal Guarantee being called in (see case below).
- Overlap between family and finance
It’s not uncommon for directors to personally guarantee business loans, or to mix personal and business funds. When a company fails, the consequences can be felt directly at home, both financially and emotionally, as the guarantor becomes personally responsible for the loan, and that can mean losing a home.
Why Family Business Insolvency requires a tailored approach
When family firms enter distress, insolvency practitioners must work with more than balance sheets. The family dynamic is central. Blame, pride and relationships all affect communication and outcomes. Insolvency and restructuring advice must be both commercially sound and emotionally sensitive.
At Antony Batty & Company, our teams have helped many family firms steady the ship – or close cleanly – through:
- Company Voluntary Arrangements (CVAs)
- Administration or pre-pack sale processes
- Creditors’ Voluntary Liquidation (CVL), when closure is the best route
- Guiding directors through investigations when personal guarantees or liabilities arise
But, above all, it is the human factor that is most important, especially so with Family Businesses.
Case Studies: some examples of family-owned firms in distress
In this section, Elaine Wilkins, one of our Directors and based at our Bournemouth office looks at three recent case studies from Family-owned businesses who have contacted her for help and advice.
- Contract Hire Business
In this case, the father and founder of the business coerced his son into becoming a director with a view to taking over the business. The son didn’t want to, but family loyalty meant that he did. Very sadly, the father has recently received a terminal diagnosis, and the son has subsequently discovered that the business, which he knew very little about, had been struggling financially for a long time, and had debts that his father had kept quiet. The son was left with an insolvent business, and we have worked with him to help him both emotionally and financially through the Creditors Voluntary Liquidation (CVL) process.
- Construction Business
Here a father and son team, both directors, had a significant disagreement over the details of a house building project from over 8 years ago. The father subsequently resigned a few years later, leaving the son as the sole director. The upshot of the house building project is that it has come to light that building regulations weren’t correctly adhered to, with a litigation claim of £40,000 being launched by the house owner against the company.
This, as with many litigations against companies, could well lead to insolvency as there are not the funds in the business to pay the claim.
- Trade Business
A successful business for many years founded by the parents in which the father was proud for the son to join when he wanted to slow down a bit. As with many family businesses the father wished, after a time, to take a back seat and be paid a monthly retainer.
Times become tough when trading through Covid, and trade did not pick afterwards. The financial burden of supporting 2 families over time and the loss of contracts left the business insolvent. It is sad to also see that this has led to a dispute within the family as to why the company found itself insolvent. A CVL is the outcome.
- Building company
Run by the father for 30 years, the son joined the business 18 months ago enthusiastically looking to grow the business when they they took on a large new contract.
Funding was taken out for the project by the father for £80k with an alternative lender who asked for a personal guarantee to be signed.
Sadly, the project has not been a success leading to mounting debts with both suppliers and HMRC. As a result, the company has become insolvent, and they are following the CVL route. However, the home of the father could now be at risk having signed the personal guarantee which could now be called in. This is something that we see happens to many directors who do not think though the consequences of what can happen when the payments cannot be met.
The scenario of the older generation backing the younger generation, wanting them to join the family business and succeed is admirable and it can be successful and rewarding.
However, as the above examples show, it can go very wrong, resulting in insolvency and, often, liquidation.
Family Business Insolvency – final thoughts
Family business insolvency is about more than finance – it’s about relationships, continuity and reputations. These firms are essential to the UK economy, but their structure and emotional fabric can leave them particularly exposed when crisis hits.
Early action makes all the difference. Directors who seek advice promptly have far more options – whether that’s recovery, restructuring, or orderly closure. At Antony Batty & Company, we understand both the numbers and the nuances of family-run companies. When the stakes are this personal, the advice must be precise.
