FINANCIAL DIFFICULTIES

SENIOR ASSOCIATE AT LAW FIRM BRABNERS DANIEL FINN SHARES ADVICE FOR BREWERY OWNERS IN FINANCIAL DIFFICULTY.

There are a number of issues to consider – no doubt at the top of this list is how to keep the lights on and continue trading. However, significant care should also be given to the legal implications of your decision making as soldiering on may leave more than a sour taste in your mouth. As a director you are in charge of the management of the company’s business and responsible for ensuring that decisions are made in line with your statutory duties pursuant to the Companies Act 2006.

One of the fundamental statutory duties you owe is to promote the success of the company for the benefit of its shareholders. However, this duty shifts when a company is struggling, such that decisions may need to be made for the benefit of the company’s creditors as a whole instead.

The point at which you should have regard to creditors’ interests is when you know or ought to know that the company is insolvent or bordering on insolvency; or an insolvent liquidation or administration is probable. It is not always easy to determine when the creditors’ duty is triggered but the general rule of thumb is that the greater the financial difficulties of the company, the more weight should be given to the creditors’ interests. Therefore, it is easiest to picture this as a sliding scale whereby a solvent business should be run for the benefit of the shareholders, a company bordering insolvency (i.e. cash flow or balance sheet insolvent) should be run for the benefit of both the shareholders and the creditors, and finally, where there is no reasonable prospect of avoiding insolvent liquidation or administration, the creditors interests should be paramount. Ultimately, there is no ‘one size fits all’ with this test and the particular circumstances of your business will need to be considered when determining whether the creditor duty arises and if so, when it arises. The implications of failing to make decisions in the interests of the creditors when the duty arises should not be taken lightly either, particularly if the company does eventually end up in administration or liquidation. This is because an insolvency practitioner will be appointed over the company and will investigate whether the directors are at fault for the events leading to its demise.

If you were in breach of your duties as a director or continued to trade the company when you knew or ought to have known that there was no reasonable prospect of avoiding insolvent liquidation or administration, then you would be exposed to potential personal liability. It is therefore imperative that you spot the signs of financial instability as early as possible and take immediate precautionary steps to limit the potential harm to the company, its creditors, and you personally. The most important way you can limit harm is by seeking professional advice in order to consider the options available to you. An effective turnaround strategy may dispense with the need to enter into a formal insolvency process, but it needs to be managed carefully. Professional advisors will be able to assist you with the different restructuring options available to the company including, for example, rationalisation and extra financing. Many breweries that operate taprooms, pubs or bars will also utilise a group structure in which each ‘outlet’ is shielded within a separate company ultimately all owned by the founder(s), the benefit being that if one bar were to cease being profitable and closed down or in a more drastic scenario, if the brewery itself were to close, then the other bars could potentially continue to trade. A recent example of this is the closure of Totally Brewed’s brewing business but with the planned continuation of their successful Beeston bar. Therefore, setting up your brewery and bars with the right corporate structure is crucial.

Administration Or Liquidation

If a solvent turnaround strategy is not viable, it may be that the business can still be salvaged if the company is placed into administration. In such circumstances, the administrators may seek to sell the business and assets as a going concern immediately following their appointment (known as a pre-pack sale). Taking Wild Beer Co as an example, the business and assets were purchased from its administrators by Ashford-based Curious Brewery meaning the business was saved and the employees retained. Placing the company into administration is not usually suitable if the business cannot be saved and so an alternative option would be to place the company into liquidation. Liquidation brings about the end of a company and the appointed liquidators will look to sell the assets so that a distribution can be made to the creditors.

It may be that you are able to pay off all of your debts in full, but you simply want to cease trading in order to realise the company’s assets. In such circumstances you may consider placing the company into Members’ Voluntary Liquidation (solvent liquidation). This would require you to swear a statutory declaration of solvency and the members would need to pass a special resolution to commence the liquidation and appoint a liquidator.

JOHN KEELING RECENTLY TOOK A TRIP TO VISIT SOME OF GERMANY’S FINE BREWERIES. HERE HE MET SOME FASCINATING CHARACTERS AND ABSORBED A WEALTH OF THE COUNTRY’S STORIED BREWING TRADITIONS.

When I retired four and a half years ago I had several objectives. One was to do more travelling, and one was to enjoy pub lunches to the max. I also wanted to keep and maintain my connections and relevance in the brewing industry. Not being the Fuller’s head brewer anymore meant I could take a much different viewpoint. Being retired, of course, left me with more time to fill and what better way than travelling the world drinking beer.

Now I have always preferred cask beer, and this is partly due to poor British versions brewed by the Big Six in my youth. Now with the rise of Lost and Grounded, Utopian Brewing amongst others this is not the case anymore. However, I have always maintained that if you want to drink a good German style beer than the best thing you can do is go to Germany.

So, I planned a little jaunt to Berlin, Köln, Nuremberg, Bamberg and finishing in Munich. Now I was taking Symone along too and although she is into her beer and also a tour guide for Fuller’s , I could not do 100% beery things so a little touristy side had to be planned too.

The first thing I did was to ask on Twitter for suggestions and thanks to everybody who replied but it was impossible to do all of them despite them all being good. Also thanks to the advice from Twitter as I used the train app and managed to get my tickets and the trains!

So off we headed to Berlin, which is a wonderful city. I enjoyed the beer scene but simply sight-seeing in Berlin was wonderful. We stayed at a central location near Checkpoint Charlie which was ideal for what we wanted to do. I had been in contact with Louise Krennmair and had arranged to meet at a bar called Forsters Feine Biere, a short train ride away. We also met the rest of the Berlin crew - Ben Palmer and Louise’s husband Andreas.