7 Things to Consider When Buying An Insolvent Company

Here you can download our Seven Thing To Consider When Buying An Insolvent Company booklet. An example of the useful information you can find in the booklet is featured below.

 

Introduction

Every year, thousands of businesses and companies face insolvency. Whilst this may be an unfortunate situation for most parties involved, an insolvency can also present a new and exciting opportunity for someone to acquire a business (or part of it) at a relatively low cost. There are however greater risks involved in buying a business from an administrator or a liquidator than if you were buying in a solvent scenario (including risks related to limited due diligence opportunities and the lack of warranties being provided). It is therefore important for any potential buyer to think carefully, and consider a few key factors in particular, before taking steps to buy an insolvent business. We set out, in this booklet, a few areas for you to think about to help you decide whether buying an insolvent business is the right step for you:

1. Timing

Time is of the essence when buying assets from an insolvent business. As soon as you become aware of a potential insolvent business for sale it is important to act quickly to ensure that the insolvency practitioner involved is aware of your interest.

Make sure you know what the deadline for submitting an offer is, and when the administrator or liquidator is looking to complete the sale by. Line up your professional advisors and undertake a due diligence exercise with those deadlines in mind.

An administrator will often ask for proof that you have funds to complete on a transaction so it is vital to make funding arrangements promptly, particularly if a cash ready buyer will be preferred by the insolvency practitioner.

2. Identify The Insolvency Practitioner

It is important to quickly identify what type of insolvency process the failed business in is, the stage of that process and who the insolvency practitioner involved is, as this may impact on the type of sale that can be done.

Where a company is in liquidation or administration, it is important to note that the powers of the directors of the company are limited and it is the insolvency practitioner rather than the directors that have the power to negotiate and conclude a sale. It is prudent to ask for a copy of the insolvency practitioner’s appointment documents to check that they are properly appointed over the company in question and to ensure they have the power to sell the company’s assets.

3. Employees

The Transfer of Undertaking (Protection of Employees) Regulations, commonly known as TUPE, will apply to certain types of insolvency sales. Where TUPE does apply it will mean that employees of the insolvent business will automatically transfer to the buyer, with limited ability to change their terms. It is important to understand at an early stage whether TUPE will apply to the acquisition that you are seeking to undertake. Once you can assess what liabilities you may have to take on as a result of TUPE you may want the purchase price to reflect those TUPE obligations.

4. Ownership Of Assets And Retention Of Title

An administrator or liquidator will usually give no warranties as to title and will only sell “such right title and interest” as may exist in an asset. It is therefore up to you, as a buyer to satisfy yourself that the assets you are buying do belong to the insolvent company in the first place, or to be aware of the implications of what may happen if it transpires that some of the assets belong to someone else.

An area which is commonly of concern is in relation to retention of title claims that suppliers of the failed business may have over stock that you are looking to buy from the administrator. If the supplier has not been paid by the failed business it may be able to take that stock back, and may only agree that you can keep it if you pay the supplier directly for it. Any payment you make in respect of retention of title stock is likely to be in addition to the purchase price that you paid to the administrator. It is therefore important to understand how the sale and purchase agreement deals with the matter of third party or retention of title goods.

IN ORDER TO FIND OUT MORE ABOUT THIS SUBJECT AND THE ANSWERS TO THE QUESTIONS LISTED BELOW, DOWNLOAD OUR HANDY TIPS BOOKLET HERE.

ALTERNATIVELY, CONTACT THE TEAM ON 020 7841 0390

5. Attitude Of Third Parties

6. Trading Using The Name Of An Insolvent Business

7. Application To The Pre-Pack Pool

Should you require any further assistance at all with these matters, then please contact one of our corporate specialists on 020 7841 0390 and we will be happy to discuss this with you.