Only 50% of pubs are operating at a profit
Licensed Insolvency Practitioners Antony Batty & Co report on how a restructuring procedure could help protect pubs against closure.
Stop press!! This article was originally written in November 2022. Now, in Mid-October 2023, research by the British Institute of Innkeeping (BII) shows that only 50% of UK hospitality businesses, including pubs, are making a profit. This is despite two thirds of respondents reporting that sales were back to pre-pandemic levels. This research demonstrates that nothing is getting any easier for pubs and bars, with the main cause of this being significant cost rises and high energy prices.
It was reported in the Morning Advertiser that in the 12 months to September 2022, the number of insolvencies in the pubs, bars and restaurants sector increased from 1,354 to 2,156. That is an increase of 59% year on year, with significant increases in energy costs being a major factor in a sector already struggling with the debt hangover from Covid-19, lack of staff, higher wages, inflation and high rising interest rates. By mid-February 2023 the latest statistics, as published in the Morning Advertiser, show that pub and bar insolvencies have risen by 83%.
In this article we look at some more figures and comment on what we are seeing in the industry. One of our Licensed Insolvency Practitioners, Antony Batty, reports on a growing trend of pubs being run through an operating company separate from the lease, freehold or tenancy. In this way, if insolvency strikes, it is possible for some landlords to wind up the operating company, whilst still retaining the pub itself, with the opportunity to start again, subject to legal conditions.
Pub closures alone rose by 90% in the first 6 months of 2022. More than 2 pubs a day closed in the first 6 months of 2023
*Research by the Campaign for Real Ale (CAMRA) has shown that pub closures in the first half of 2022 grew by over 90% compared to the last 6 months of 2021, the figures being 485 and 254 respectively.
This trend has been continuing in 2023, with figures from commercial retail analyst, Altus Group, showing that 383 pubs closed in the first 6 months of 2023 – more than 2 per day – with the total for the whole of 2022 being 386.
Closures are coming across the spectrum, from individual pubs such as the Brighton Beer Dispensary to BrewDog, which closed 6 of its bars across the UK in August 2022. Even Wetherspoons have announced the closure of 32 outlets, which are being put up for sale.
Pubs are now often run by an operating company, which is separate from the entity which owns the lease, tenancy or freehold
At Antony Batty, we have seen a lot of operating company structures recently, having been instructed on half a dozen pub insolvencies in the past few months alone, mainly individual, independent pubs that have simply exhausted all of their options. In these cases, it is usually too late to do anything about it other than implementing an orderly winding up of the business usually through a Creditors’ Voluntary Liquidation.
As Antony Batty says,
“We are seeing a number of Liquidations as a result of inflation and a lack of staff hitting businesses which were already weak following the pandemic. Monthly energy bills going up in some cases from £2,000 to £7,000 (and more), for example, have been the final straw.
Interestingly, an increasing number of pubs are being run through an operating company which is separate from the ownership of the lease, tenancy or freehold. As a result, some operators have been able to wind up the operation company yet retain the actual pub.
Such operating companies are generally given a licence to run the pub business from the “landlord” who may be the freeholder, leaseholder or tenant. The operating company employs staff, buys food & drink, pays business rates, contracts with energy suppliers and receives all trading income.
On insolvency, the operating company’s only asserts are generally wet and dry stocks. Fixtures and Fittings and goodwill are generally owned by the “landlord”. However, it is not uncommon for the same individuals to be both “landlords” and directors of the operating company.
The directors of such pub operating companies do not necessarily get away scott free; they are restricted from being a director of another company with a similar trading name and must take great care to keep the different enterprises separate and at arms-length.
If XYZ Op Co Limited trading as, say, ‘The Queen Victoria’ pub goes into Liquidation, section 216 of the Insolvency Act 1986 prohibits (with certain exceptions) the same directors from forming a New Op Co Limited which then trades as the ‘The Queen Victoria’. It is clearly very difficult, and undesirable to change the name of a pub.”
Other Options to consider if Insolvency looms
As with all businesses, our advice is for directors to act as soon as possible if financial difficulties are mounting. In addition to the restructuring option outlined above, some other options are:
- Negotiating a Time to Pay Arrangement with HMRC. These structured payment plans with HMRC give businesses time to pay back what you owe. We are experienced in dealing with HMRC in such matters.
- Additional Finance. We have professional contacts with multiple lenders who could help find the right deal for extra funding.
- A Company Voluntary Arrangement. If creditors are demanding the money they are owed, the CVA process allows for an insolvency practitioner to propose to them a structured repayment plan for a percentage of the debts. This means you can write off part of your debt and avoid liquidation. A CVA is a recovery process that can buy a company time to turn things around.
Our advice is that if you know that the underlying position of your company is weak, then act now. The sooner you contact the Licensed Insolvency Practitioners at Antony Batty & Company, the sooner we can recommend a solution. We will talk you through all the options available, so that you know exactly where you are, helping you to make the best possible decisions.
In the meantime, if you need our help and advice in any of our specialist insolvency areas, please contact us or call any of our offices, below, for a FREE initial discussion on the phone or over a coffee, with one of our Licensed Insolvency Practitioners.
Also, K&W Recovery, trading as Antony Batty and Company, Thames Valley: