Can’t afford to pay my employees – What can I do?
Not being able to pay your employees is often a business owner’s worst nightmare. The workforce depends on the business, just as the business depends on its employees to function. Failure to pay staff wages and salaries on time is generally a sign of cash flow problems.
Historically, you may have been handling your daily expenses and paying staff ‘just fine’ but are currently experiencing difficulty in this area. We can help guide you through the best options for your business when it comes to employee payroll.
Common reasons I cannot pay my workforce
Usually, a failure to pay wages is a result of cash flow shortage. This could be a short-term problem for the business, such as a seasonal downturn. However, if there are bigger underlying problems within the business, such as a general decline in sales following a bad debt, loss of a large contract or late-paying clients, it could be an issue with the business model and a long-term problem.
What options are available if I cannot pay staff?
When you, as a director, are placed in the difficult situation of not being able to pay your staff, you must consider if the business is in a short-term rut or if the problem is likely to have long term repercussions.
If you can’t pay staff, but you believe the business is genuinely viable and has a future, there are solutions available to help the business survive. However, if there are deeper problems within the business, it may be necessary to ‘shut up shop’ and wind down the business in an orderly manner. In that situation, there is some protection available to employees (see below).
Is it short term & temporary?
If the inability to pay staff is only a temporary problem, the business can try some of the different options available to get a cash injection.
Ask staff to wait
Although business owners might not like it, sometimes asking staff to wait for payment is all they can do. If you believe that eventually the business can pay its employees, be honest with staff and explain the situation, hopefully, they will respond positively and support the business.
While this can give the business more time, especially if you are awaiting unpaid invoices, the fundamental problem might remain. Will the same problem occur again?
Loans
If you believe that the company is simply in a tight spot, or has just begun to struggle slightly, you could seek out a loan, from a bank, possibly friends or family. This could be a short-term temporary solution to allow you to continue trading. However, if there are underlying problems which have not been addressed, borrowing more money to help an already ‘sinking ship’ is more likely to add on further debts and creditors to the company.
If a director knows that the company isn’t working and is insolvent, they could be held personally liable for any debts incurred if they allow the company to continue to trade whilst insolvent.
Is it long term?
If there is a bigger cash flow problem which is a long-term issue, the business model needs to be assessed so that the company can find the best solution moving forward.
Is the business model viable?
If the business model is solid and could make a profit without the debt, there are arrangements which allow a company to continue trading while paying its liabilities. Which procedure is best suited for the business will depend on its current state.
More information about company recovery
Invoice financing
Invoice financing is an option only available to B2B businesses. It allows businesses to raise finance from a factoring company, based on the value of its invoices. If the business can work but is being put into difficulties with cash flow via late-paying clients, or perhaps is growing quicker than it can generate cash, it can be the perfect way to put funds into the business and pay staff. With our help, we can find you the best deal for your situation.
Company Voluntary Arrangement (CVA)
A CVA is a procedure that can help you get the company back on track, and importantly, be able to pay all your employees. It will allow the business to come to an arrangement with its unsecured creditors and reduce any debts owed on a pro-rata basis. It can give companies the chance to continue trading while repaying creditor debt. This could solve cash flow problems and enable a company to pay employees.
More information on Company Voluntary Arrangements
Administration
Administration is only a viable option if it achieves a statutory purpose, one of which is getting a better return for creditors. If the business has outstanding contracts which it can still fulfil, it could mean there is a bigger pot of money to pay back creditors once the work is complete. This includes any payments due to staff who had to be laid off because of the administration process.
More information on company administration
The business is not viable in its current structure
Sometimes the business model might not be viable in the current market, or the company is suffering from such a large amount of debt that it’s not feasible to continue. You might be better off closing the company down in these circumstances.
More information about company closure
Liquidation
If the business simply isn’t working, not being able to cover payroll might just be the tip of the iceberg. There could be much larger problems within the business, and a liquidation might be the best route moving forward. Once the liquidation process begins, the priority will be ensuring that creditors are paid back as much of their debt as possible.
Employees who are affected by a liquidation are legally able to claim holiday pay, redundancy pay, any unpaid wages and payment in lieu of notice period (limits apply) from the Government, and we will assist with this process.
Read more about Creditors Voluntary Liquidation
In summary
If your business has a future, but you are unable to meet payroll when it falls due, there are solutions to be found to keep things going and pay staff. Alternatively, if a failure to pay employees is just the start of insolvency, it’s highly recommended to start looking into the most efficient way of closing the company down.
How we can help
We can help you navigate through the process of invoice financing if there is an option for keeping the business trading. Alternatively, there may be ways of rescuing or restructuring the business. If it is time for the company to come to an end, we can offer you support for closing the company down in the most efficient manner. Whatever the situation, the sooner you ask for help, the greater number of options are likely to be available.
Dealing with creditor pressure
One of the least pleasant aspects of suffering from business debt is dealing with creditor pressure. If confronted with a persistent creditor or debt collector, knowing how to deal with them can make your situation easier to manage. If you’re aware of what separates creditor harassment from reasonable action, it can help identify when creditors are being too forceful, and you may have grounds to make a complaint.
More on dealing with creditor pressure
Case Studies
Catering Butchers
Kelly Burton • Leisure & Hospitality • Administration
A previously successful, family-owned and managed catering butchers saw its turnover eradicated by the Covid 19 outbreak.
Following a review of all the options with the team at Wilson Field, the directors decided to appoint WF as Administrators.
Kelly Burton, director and insolvency practitioner at Wilson Field added:
“Like many over the pandemic, unfortunately there were some difficulties encountered as the business struggled to keep up its strong sales. However, we are continuing ro release the assets for the benefit of the creditors.”
Due to a lack of funding, the business unfortunately ceased to trade, however, the Administrators have managed to secure the debtor ledger and a sale of the remaining tangible assets, for the benefit of creditors.
Berks Healthcare Services Limited
Kelly Burton • Healthcare • Administration
Wilson Field has advised on the sale of a Slough-nursing agency which was bought out of administration saving all 7 jobs.
Berks Healthcare Services Limited, which traded as Enchor Healthcare Services, specialised in providing healthcare professionals for the public and private sector.
It supplied registered general and mental health nursing staff, together with unqualified support and ancillary staff, to private hospitals and care homes in the areas local to the company’s offices in Slough, Portsmouth, Birmingham and Luton.
The company, headed up by healthcare professionals, called in administrators from Wilson Field after suffering from a fall in turnover, which left it struggling to meet unsustainable historic legacy debt. It had also been issued a winding-up petition from HMRC.
Kelly Burton and Emma Bower were appointed as joint administrators on 14 June 2018 and concluded the sale of the business and assets for an undisclosed sum to an unconnected company Connect Care & Support Limited, also based in Slough.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said: “The company had a turnover in the region of £2.9m per annum in 2017. However this is a very competitive marketplace, which is primarily price driven and recent minimum wage legislation changes had also impacted on the company’s potential profit margins.
“As administrators, we sought a purchaser for the business.
“This pre-packaged sale to Connect Care & Support Ltd saved seven permanent jobs as well as numerous temporary agency staff.
“It has also mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay in lieu of notice estimated to total £29,576 as the liabilities have transferred to the successor business under the TUPE regulations.
“This means the business has a new future moving forward.”
Berks Healthcare Services Ltd was incorporated in January 2015, but can be traced back to February 2007. Enchor Health Care was recognised and registered as Recruitment Consultants providing both permanent & temporary staffing solutions to many different Health and Social Care settings. It also had supported living and rehabilitation centres.
Silcox Coach Company
Kelly Burton • Automotive • Company Voluntary Arrangement (CVA)
Pembrokeshire-based Silcox Coach Company, which operates school transport as well as local bus services, has been placed into administration today.
Despite attempts by administrators from Sheffield-based Wilson Field to secure a buyer with various interested parties, the 134-year-old company, which operated a fleet of 65 coaches and buses from its base in Pembroke Dock, has now ceased trading.
Insolvency practitioners Kelly Burton and Joanne Wright from Wilson Field Limited were appointed by shareholders after the company experienced financial difficulties and as a result all 92 staff jobs have been made redundant.
However, in the region of 50 staff have been re-employed by Edwards Coaches of Pontypridd who have been granted the local authority contracts previously operated by Silcox.
Kelly Burton, director and insolvency practitioner at Wilson Field said:
“Silcox Coaches was a fourth generation bus and coach operator and over the years provided various forms of transport services latterly focussing local authority community bus routes, school services, coach hire and coaching holidays.
“The company had an excellent reputation within the industry, the local community and its clients. Initially there were a number of parties interested in buying the business and assets and we had hoped to save all the jobs of the loyal workforce. Sadly, despite our best efforts none of these came to fruition. On the positive side, Edwards Coaches of Pontypridd have re-employed approximately 50 of those staff.”
As well as office accommodation in Pembroke Dock, Silcox also occupied a small travel office in Tenby and a large bus and coach compound near the offices in Pembroke Dock.
Edwards Coaches is the largest family owned coach company in Wales employing over 500 staff and operating 260 vehicles. It currently operates National Express coaches from Haverfordwest departing daily to Cardiff, Heathrow, Gatwick London and various other destinations plus transportation for over 8000 students to school or college each day from bus depots all over South Wales.
It also operates coach holidays for 80,000 passengers a year across the UK and Europe and operates The Edwards’ Red Dragon coach which is the official carrier of the Wales Rugby Team.
Travellers who have booked and pre-paid for a holiday with Silcox may be entitled to a refund and should contact either Bonded Coach Holidays (BCH) e-mail: bch@cpt-uk.org or The Confederation of Passenger Holidays UK (CPT) Tel: 020 7240 3131.
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