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Last orders? Restaurant insolvencies up 64% in the last year

New data from UHY Hacker Young has found that UK restaurant insolvencies have increased by 64% in the last year... and it isn't just Covid that's to blame (though undoubtedly it is a factor). As eloquently put by a partner at UHY: "The restaurant sector has emerged from one crisis only to face an onslaught of other challenges." 

Since May 2021, over 1,406 restaurants in the UK have closed their doors for the last time. Businesses have been hit by inflation, staffing shortages, high labour costs (including the rise in National Insurance Contributions) and reduced consumer spending.  

Rising interest rates have also made it more expensive for restaurants to borrow money - as well as increasing the amounts they need to pay back on existing loans. Restaurants were largely supported and protected through Covid by the financial support offered by the Government and the temporary protections afforded under the Commercial Insolvency & Governance Act 2020, but both of those have now come to an end (further details here). Further, the threat of enforcement action from landlords against restaurants has also increased recently in light of the Commercial Rent (Coronavirus) Act, which put in place measures to deal with commercial lease arrears which accrued during business closures resulting from the pandemic.

This changing legislation leaves restaurants open to enforcement action on unpaid debts and loans - which may (and often does) lead to winding up petitions being presented. Whilst the courts appreciate the battle that the restaurant industry have faced in the last 2.5 years, there is little that they can do when faced with a winding up petition for a debt which is clearly due and owing. Therefore, those facing enforcement action from landlords or third parties should look to enter into negotiations with those entities early on - landlords in particular will often want space filled and rent being paid, even if that rent is being paid at a reduced rate.  

It seems that even the strongest brands which have been in the news recently due to their success, acknowledge that the hospitality business is a difficult market to operate in at the moment. The rising cost of living - whilst impacting everyone in one way or another is hitting the food and beverage sector, in particular.  After all, if you're looking at cutting your weekly spend so that you can keep Lurpak on the food shop, then ditching the Friday night out is probably an easy option to take.  

New data from the accountancy firm UHY Hacker Young showed that 1,406 restaurants in the UK closed their doors in the 12 months to May, up 64% on the previous year.

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