Buying assets from an insolvent company can be a legitimate way to preserve value, protect jobs and continue a viable business. It does not automatically mean that the buyer, the former directors or the new company have acted wrongly. However, where the buyer is connected to the old company, or the new business continues with the same name, customers, staff, website or assets, the transaction may be looked at more closely.
The main risks are usually practical rather than theoretical. A poorly documented purchase may later raise questions about asset value, creditor prejudice, reusing a company name after liquidation, HMRC arrears or director disqualification. With the right advice, many of those risks can be identified and managed before completion.
This guide explains how asset purchases from insolvent companies can overlap with phoenix company and director disqualification risk, what evidence should be kept and what directors should consider before acquiring assets from a company in liquidation or administration.
What does buying assets from an insolvent company involve?
Buying assets from an insolvent company usually means buying selected assets rather than buying the shares in the company itself. Those assets may include stock, equipment, goodwill, customer lists, intellectual property, contracts, domain names, vehicles, plant, premises-related rights or a trading name.
The transaction may take place during company liquidation, administration, a pre-pack sale or another insolvency process. In many cases, the seller will be an insolvency practitioner, rather than the old company’s directors. That matters because directors’ powers are usually limited once a formal insolvency process has begun.
- For buyers, the attraction is often speed and value.
- For directors, the concern is often whether buying assets from the failed company will be treated as improper phoenixing.
The answer depends on the structure of the transaction, the price paid, the parties involved and what happens after completion.
Is it lawful to buy assets from an insolvent company?
Yes. Buying assets from an insolvent company can be lawful and commercially sensible. The legal risk does not arise simply because a director, shareholder, employee or connected party is interested in buying assets. The risk arises where the transaction appears to move value away from creditors, mislead the market, avoid liabilities or continue the same business without complying with the relevant insolvency rules.
A properly handled sale should usually involve
- an identifiable seller with authority to sell,
- a clear list of assets being acquired,
- evidence of valuation,
- a written sale agreement; and
- proper consideration being paid.
If the buyer is connected to the old company, the transaction is more likely to be scrutinised, so the paperwork needs to be particularly clear.
FWJ’s existing resource on buying assets from an administrator is a useful starting point for buyers considering an administration sale. Where the buyer is also a former director, the prohibited name and director conduct issues should be considered alongside the commercial deal.
Why can an asset purchase create phoenix company concerns?
A phoenix company concern usually arises where the old company enters insolvency but a similar business continues through a new or existing company. This may be lawful where the assets are bought properly and the new company complies with the rules. It may become problematic where the old company’s creditors are left unpaid while the same business effectively carries on for the same people.
- The concern is often sharper where there is continuity of name, trading style, premises, staff, customers, branding, telephone numbers, website, social media accounts or goodwill.
- Those factors do not automatically make the transaction unlawful, but they may cause a liquidator, creditor, HMRC or the Insolvency Service to look closely at what happened.
Directors should be especially careful where there have been repeated company failures, substantial unpaid tax liabilities or a quick transfer of valuable assets to a connected company. Those facts may also support later allegations of misconduct or claims by liquidators or administrators.
Can the buyer use the old company name or trading name?
This is one of the most important questions in any connected-party asset purchase. Section 216 of the Insolvency Act 1986 restricts former directors from being involved in a company or business using the same or a similar name to a company that has gone into insolvent liquidation, unless an exception applies or the court gives permission.
The restriction is broader than many directors expect.
- A prohibited name can include the registered company name, a trading name, a brand name, a registered trade mark or a similar name that suggests an association with the liquidated company.
- Changing the company number or using a slightly different corporate name may not be enough if the trading identity remains too close.
The rules are particularly relevant where a buyer acquires goodwill, branding, website content, domain names or customer-facing material from the old company. Those assets may have commercial value, but they may also create prohibited company name risk if the buyer is a former director or a company managed by a former director.
What are the section 216 exceptions when a business is bought from an insolvency practitioner?
There are limited exceptions to the prohibited name restrictions. The most relevant in an asset purchase is usually the business purchase exception, where the business, or substantially the whole business, is bought from a liquidator, administrator, administrative receiver or supervisor of a voluntary arrangement and the required notices are given.
The timing and content of the notice are important.
- Official guidance explains that notice must be given to the company’s creditors and published in the Gazette within the required period.
- This is not a box-ticking exercise.
- If the notice requirements are not met, the director may still be exposed to criminal liability and personal liability for the new company’s debts.
The court permission route may also be available in some cases, but directors should not assume that permission will cure an earlier breach. If the name has already been used, the position needs urgent legal analysis because permission is not generally retrospective.
What valuation evidence should be kept?
A connected-party asset purchase should be supported by evidence showing that proper value was paid. That evidence may include an independent valuation, details of marketing, competing offers, a schedule of assets, the sale agreement, proof of payment and correspondence with the insolvency practitioner.
- The purpose is not simply to complete the deal.
- The same evidence may later be needed if a creditor, liquidator or HM Revenue & Customs asks whether value was transferred away from the insolvent company.
- If the buyer cannot show how the price was reached, the transaction may be easier to challenge.
Where a director has been involved on both sides of the transaction, advice should also be taken on directors’ duties, conflicts of interest, transactions at an undervalue, preferences and misfeasance claims.
How can an asset purchase lead to director disqualification risk?
An asset purchase does not automatically lead to director disqualification risk. The issue is whether the director’s conduct, viewed as a whole, suggests unfitness. A properly documented purchase at fair value may help answer that concern. A rushed transfer to a connected company, without valuation or creditor transparency, may increase it.
The Insolvency Service may look at
- whether the old company’s assets were removed for inadequate value,
- whether the same business continued while liabilities were left behind,
- whether HMRC debts were repeated,
- whether creditors were misled; and
- whether the director cooperated with the liquidator.
These questions often arise alongside early enquiries from the Insolvency Service or later director disqualification correspondence.
If a director has already been disqualified, any involvement in the management of a successor company creates an additional risk. A disqualified person may need to consider whether a section 17 permission application is required before being involved in the promotion, formation or management of a company.
What if HMRC is owed money by the old company?
HMRC arrears can materially change the risk profile of an asset purchase. Where tax debts are left behind and a similar business continues through a connected company, HMRC may examine whether there is repeated insolvency, non-payment or tax phoenixism.
- That does not mean every connected-party purchase involving tax arrears is abusive.
- It does mean the buyer and former directors should keep clear records showing the commercial purpose of the transaction, the value paid, the treatment of assets and the steps taken to comply with tax and insolvency rules.
HMRC may also have separate tax enforcement options, including security requirements and, in some repeated insolvency cases, joint and several liability notices. Directors facing these issues should take advice on HMRC claims against directors as well as the phoenix company issues.
What practical steps should directors take before buying assets?
Directors and connected buyers should slow the process down enough to check the main risk points before completion. That may feel difficult in an insolvency sale, where timescales are often short, but a rushed purchase can create avoidable personal risk.
The buyer should identify
- who has authority to sell,
- confirm the insolvency process,
- understand exactly which assets are being acquired,
- check whether any name or branding restrictions apply,
- obtain valuation evidence; and
- document the commercial reasons for the transaction.
If the buyer intends to employ staff, use the same premises, trade under a similar brand or contact the same customers, those points should be considered before the sale completes.
Where the buyer is a former director, the legal review should also cover section 216, section 217, potential liquidator claims, HMRC exposure and phoenixism and director disqualification.
What if the asset purchase has already completed?
If the purchase has already completed, the first step is to review the documents and identify any immediate compliance issues. This may include checking the sale agreement, valuation evidence, notices, Gazette publication, use of trading names, domain names, branding, staff continuity and management structure.
If a prohibited name may already have been used, the position should be assessed promptly.
The available steps will depend on the facts, including whether an exception applies, whether court permission should be sought, whether the name should be changed and whether any debts may have been incurred while the prohibited name was being used.
It is also sensible to prepare a clear chronology. That can help if the liquidator, HMRC, a creditor or the Insolvency Service later asks why the transaction took place and how the price was reached.
How FWJ can help
FWJ advises directors, connected buyers, creditors and insolvency practitioners on asset purchases from insolvent companies, phoenix company concerns, prohibited name rules, HMRC exposure and director disqualification risk.
Our team has done this successfully since 2002. With nearly 25 years under our belts, we have the experience to help you.
We can help review proposed transactions before completion, advise on name reuse, assess valuation and creditor-risk issues, respond to liquidator or HMRC enquiries and help directors understand whether a proposed purchase may create personal liability or disqualification concerns.
If you are considering buying assets from an insolvent company, or you have already completed a purchase and are concerned about phoenix risk, early advice can help clarify the position and reduce avoidable personal exposure.
