Practical planning for solvent exit and liquidation - ReSolve Group UK

Practical planning for solvent exit and liquidation

ReSolve Group UK

Practical planning for solvent exit and liquidation

In an article published in Accountancy Daily our Director, Russell Payne, provides practical advice for those planning a solvent exit or liquidation of their business.

Identifying the need to exit a business should not be regarded as a failure, especially in the current economic climate with the challenges of COVID-19, Brexit, and the technological revolution our society is currently living through. Rather a closure or wind-down is part of the business lifecycle and, as with any milestone, requires the business owners to find the best, efficient outcome for all stakeholders.

Exiting may be spurred by:

  • The sale to another party with a company shell remaining.
  • Transfer to other parties within the organisation, such as following a merger and the integration of operations or the close of the operations with the goal of preserving and/ or redeploying capital to a more profitable area of the business.
  • Returning value to shareholders.

In many circumstances the decision to manage a solvent exit from a business can be the best for its owners, the business itself, employees, and suppliers.

Planning

Having an exit strategy is as important as having an operational plan once the decision has been made. When exiting a business there is only one chance to get it right and having a clear exit plan enables business owners to control any benefits whilst minimising the costs – mistakes at this time can be very expensive and/ or open the Directors and a parent company to financial and reputational risk. However, because closing does not happen that often, Management Teams that are experienced at successfully growing businesses may still lack the know-how of managing an exit.

Creating the plan

From the beginning, consult widely and seek the advice of both internal stakeholders and external professional advisors. We live in a highly specialised and regulated business environment and it is unlikely that one person alone will have all the detailed answers or have the ability to identify all the risks. Therefore, you must get advice from as many professionals as possible so that you can draw up a robust plan, identify issues, and outline how to tackle them.

The plan needs to cover tax, legal, treasury, finance, HR, IT, operations, risk and regulators (if the business is in a regulated sector).

Start building the draft plan with high-level steps. This must then be circulated to all key stakeholders or more widely if the decision to exit is not commercially sensitive. Business owners must be mindful of the Employment Law notifications that apply to redundancies – issuing an internal NDA email or letter is a good way of reinforcing confidentiality.

The second step is to ask those with key knowledge to input and highlight any key areas of concern, such as the timescale they think is needed to implement, resources required (both internal and any external additional support). Ask for an indication of estimated costs and do not forget a budget to monitor costs and spend. I recommend adding a contingency of 10 – 20% to account for ‘unexpected’ expenses and disbursements that may arise during the project.

Once you have responses from all stakeholders, you have what I call a ‘route map’ from which you can begin to assemble all the component parts of the various intricate tasks and activities required to implement the plan.

Multiple drafts of the plan are quite common, as each of the stakeholders review and revise their actions and understand the interdependencies. Make sure that there is only one version of plan (or the ‘truth’) and updates are circulated regularly to key team members up to speed as the plan evolves. This ensures everyone is always aware of proposed steps and any changes and all stakeholders can input and highlight if a proposed step is likely to have a negative side-effect.

The plan will make the process more efficient as it will identify linkages between the steps to be taken and identifies who is responsible for what. Depending on the business, the plan may be no more than a few sheets of paper, or it can run to multiple pages, occasionally stored in project management software (but in my experience only for the most complex would the investment be required)

Things to be aware of

Be aware of the time needed to action certain steps. Stakeholders frequently underestimate the time taken to complete a task or activity. Also take account of statutory timetables, consultation periods, contract termination notices, and the time it takes to transfer, sell, or novate assets.

If you have the luxury of time, set realistic deadlines and factor in delays as there are certain periods of the year in which you are likely to experience delays – for example in the middle of Audit season, year-end or month-end processing and during main school holidays, especially August!

Remember to find out what trade names, trademarks, patents, web-domains and similar are held by the company and have a clear plan of what to do with them.

Any outstanding litigation against the business or employee industrial injury claims or similar may not be immediately identifiable. These can take time to resolve and can delay closing a business and/or commencing a solvent liquidation. Make sure these are noted early in the process, and solutions found and factored into the timeline.

Check for any off-balance sheet items such as indemnities, warranties, and guaranties which may crystallise when exiting a business or give rise to future risk of a claim. These may not be identified on the financial statement and can easily be missed. There are various solutions to dealing with these potential outstanding liabilities.

If staff are sadly being made redundant try to ensure that any essential corporate information is received from them and their projects and processes are efficiently concluded.

For any data stored on the Cloud remember to check it is secure, GDPR compliant where appropriate and factor in any timelines required for its retention or destruction.

There are many components to devising and implementing a successful exit plan from a solvent business. They may seem daunting but by putting everything down on paper and creating a plan, you will find that everything is much more manageable.

 

Russell Payne is a Director at ReSolve and leads our Corporate Simplification team.

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