At Guardian Business Recovery we have developed specialist knowledge in assisting franchisees, be they companies or individuals, through the difficult process of insolvency. Our expertise in insolvency coupled with our understanding of how franchisors think and a franchise operates mean we are well-placed to assist you. Whatever the underlying reason, when your franchise business runs into financial difficulties, you are obliged to take action as your duties to act in the best interest of the company and its shareholders flip to acting in the best interests of creditors to the creditors and keeping their losses to a minimum. This may mean that you need to enter into a formal insolvency process and you should, in every case, take professional insolvency advice.

  • Signs that your franchise business may be in trouble include:
  • Struggling to meet your franchise fee/royalty or other cash flow difficulties
  • Other financial or operational problems
  • Lack of available security to offer for new credit
  • Late filing of accounts and franchise returns
  • A threat by the franchisor to activate its “step in rights”
  • A sudden realization that the franchise is now a liability and not an asset
  • The franchisor wanting to terminate the franchise agreement in order to re-sell the territory

When you approach us we will review and consider your business and financial circumstances and, if necessary, engage in dialogue with the franchisor to try and preserve as much value in the business as possible.

There are three common formal insolvency procedures used in franchising businesses:

Administration

Upon appointment the administrator’s first objective is to try to rescue the company itself, but this is rarely achievable. The usual, fallback, solution is a going concern sale of the business to a third party, with a live and binding franchise agreement. The business sale should achieve a better result for creditors than the alternative of liquidation (break-up) and it is the Administrator’s second objective.

Creditors’ Voluntary Liquidation

This will almost certainly render the franchise agreement null and void. Assets will be sold on a break-up basis. Assets belonging to or subject to finance from the franchisor would be returned including the manuals and intellectual property.

Company Voluntary Arrangement

This is a contractual deal between a company and its creditors, backed by statute, which creates a breathing space for a company to reorganize and restructure its finances. It may also compromise the debts owed by a company to its creditors. It requires the consent of a 75% majority of creditors and for this reason will need the franchisor to be supportive.

Solvent Franchises

If your franchise period is simply coming to an end and/or you wish to retire or cash up, a Members’ Voluntary Liquidation may be an appropriate solution to the problem of extracting value from your business. In this procedure all creditors are paid up if full and the residue profits, which belong to the shareholders, are returned as a capital distribution. This can be beneficial for tax purposes due to the incidence of capital gains tax reliefs such as Entrepreneur’s relief. Obtaining expert advice from a specialist tax advisor is always advisable before embarking on this process.

To discuss your circumstances and the options you have in detail, please call John Paylor on 020 3096 0750.

GBR Meeting to discuss how we can help you

Contact

Guardian Business Recovery
72 Temple Chambers
Temple Avenue
London, EC4Y 0HP
Tel : 020 3096 0750
Fax : 020 7583 1200

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GBR is a member of R3
GBR is Member of ICAEW Chartered Accountants

John Paylor is licensed as an insolvency practitioner in the UK by the Institute of Chartered Accountants in England and Wales

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