An industry under pressure

As insolvency and restructuring practitioners we are often asked by lawyers, accountants, bankers and businesspersons what industries are in stress.

In answer to this question right now (and the answer will always change at different times of the year and at different points of the economic cycle) hospitality seems to be in a crunch.

This year we have seen a significant number of hospitality businesses approach us that are concerned about their financial circumstances and a number of them have turned into formal insolvency appointments.

We have made two observations that are consistent amongst all the hospitality businesses we have recently seen.

Firstly, all the businesses were significantly insolvent by the time they came to see us, with large and long-standing tax arrears that have resulted from long periods of unprofitable trading.

Secondly, the directors are exhausted by the time and effort they have been putting into their businesses to make them work, and can’t see the future profits returning fast enough to help them make meaningful inroads into the overhanging debt.

On the plus side, we have been surprised at the market appetite for investors interested in purchasing these distressed businesses, suggesting that the industry itself is not in gloom and doom, and with the benefit of a debt re-set, the businesses themselves can be successfully re-established.

Voluntary administration and small business restructuring are great options for struggling industry operators to consider, but most viable for businesses whose relationships with their landlords are not broken and employee entitlements, such as superannuation, have not been used to fund trading losses.

HPL can help advise on and implement restructuring strategies for businesses who meet this profile, and can help with liquidating those that do not.