Manufacturers are struggling to maintain financial stability and deal effectively with a transforming operating environment, with many facing a decline towards insolvency and potential liquidation.
Heavy debt levels within the sector are constantly compromising cash flow, and alongside a lack of capital investment capability, it is difficult for manufacturing businesses to move past the current problems and grow anew.
So what specific issues is the sector facing at this time, and what happens if business cannot be turned around?
Lack of capital to upgrade legacy systems and processes
Continued use of outdated systems and processes jeopardises productivity, and ultimately profitability, especially when rival companies have the financial capacity to invest in new technology and artificial intelligence. For companies with poor cash flow and little capital available for investment, outdated systems threaten their survival.
Increased import/export costs creating financial difficulty
A significant increase in import and export costs following the UK’s exit from the EU has placed considerable pressure on cash flow for manufacturing businesses. Additionally, uncertainty over new administrative requirements at customs has added a further level of complexity to supply chains.
Shortage of skilled workers in manufacturing
A shortage of skilled workers in the sector limits growth and development, and changing needs around skills training is also an issue of note. Even if a company can invest in advanced technology, they need to build a new training/retraining framework that covers the skill sets required for new innovation, such as machine sensors.
A changing business model
Some manufacturers have added a direct to consumer (D2C) element to their business, providing a new avenue and demographic for trading. This agility has not been possible for others, however, given the cost of regulatory compliance with GDPR (General Data Protection Regulation), and the ongoing challenge of cyber crime.
These are multiple and diverse issues, so what should manufacturers do if they are facing financial decline?
Professional insolvency advice for manufacturing businesses
If you believe insolvency is looming for your manufacturing business, or your company is already insolvent, you must seek professional assistance from a licensed insolvency practitioner (IP).
When a company enters insolvency it must stop trading immediately, and engage the services of a licensed IP who can assess its position and potential future. Not all businesses in this position have to be liquidated - many experience short-term cash flow issues, but can be rescued via a formal insolvency procedure.
The principle aim of our licensed insolvency practitioners at Begbies Traynor Group is always company rescue, and this may be possible by undertaking a restructuring programme. In some instances, however, the financial difficulties being experienced are just too advanced, and voluntary liquidation might be recommended.
So what does it mean if your company cannot survive, and liquidation is the only option?
Understanding liquidation for manufacturing businesses
If your company cannot be rescued, Creditors’ Voluntary Liquidation (CVL) enables you and other directors to fulfil your legal obligations by placing creditor interests first. If you wait for a creditor to take legal action and allow their losses to increase, you could face significant scrutiny by the Insolvency Service, and potential sanctions for wrongful trading.
These might include disqualification as a director for up to 15 years, and potentially, personal liability for the additional debts incurred. We can offer the guidance you need on placing your company into liquidation, and further information on the procedure as a whole.
You may be able to claim director redundancy if your company is liquidated - a significant benefit of entering CVL as director redundancy claims currently average £9,000. We can put you in touch with a highly reputable claims management firm to establish your eligibility, and help you make an accurate claim.
When the company is liquidated it closes down permanently with the loss of all jobs, and your staff can also claim redundancy through the liquidator if they are eligible.
There may be other options available to your manufacturing business, however, and these depend on the assessment by the IP. Begbies Traynor Group is the UK’s leading business rescue and recovery practice, and can provide reliable advice tailored to your business.
If business can be turned around, a range of formal insolvency procedures are available.
Rescue my manufacturing company
There may be various elements in a formal restructuring of your business, but renegotiating debt is commonly a central component. Company Voluntary Arrangements (CVAs) are legally binding so creditors cannot begin or continue legal action as long as the company is making payments in accordance with the agreement.
A CVA typically lasts 3-5 years, and enables directors to continue at the helm of their business. Restructuring might also mean redundancies have to be made to allow the company to reduce costs and transform into a more streamlined entity, which is better able to compete in a changing market.
If creditor pressure is severe, the company can seek protection by entering company administration. This offers an eight-week moratorium on creditor legal action, and with various possible routes from administration available, including the above-mentioned CVA, the procedure provides the breathing space needed to formulate a plan for the future
Sell my manufacturing company
Pre pack administration
Pre pack administration is a specific type of administration that allows the business’ underlying assets to be sold quickly, preserving value, and enabling a smooth transition to a new owner.
It is possible for existing directors to purchase these assets and trade under a new company free of debt, but suitability for the process must be determined by a licensed insolvency practitioner.
Pre pack administration can be beneficial in a number of ways. A significant advantage is that it saves jobs, as employee contracts are safeguarded under TUPE legislation – the Transfer of Undertakings (Protection of Employment) regulations.
Begbies Traynor Group will provide the guidance you need if your manufacturing business is struggling, and you fear it may need to close down. Please get in touch with one of our expert team to arrange a same-day consultation, free-of-charge. We operate an extensive network of local offices around the country, and can quickly establish your best options.