Buying assets from an insolvent business
As part of the insolvency process, a liquidator or administrator (insolvency practitioner) will be appointed and it is part of their role to collect in as much money as possible to pay the creditors. The best way for the liquidator or administrator (insolvency practitioner) to do this is to sell the assets of the business – this can mean all the business in one go or piece by piece to different buyers.
Buying assets from an insolvent business can be tricky – our specialist team of business and employment lawyers can help you through the process.
The sale and purchase will be by way of an asset purchase agreement but there will be substantial differences from a normal sale and purchase. From the outset, there is likely to be little due diligence or disclosure provided by the insolvency practitioner. This is because the sale of an insolvent business or its assets is carried out on a “sold as seen” basis. Therefore, no warranties or indemnities will be provided. A buyer must however ensure that the insolvency practitioner has been correctly appointed and has the right (and title) to sell the assets.
As commercial solicitors we are aware of the complex nature of issues which can arise on the purchase of being an insolvent business and the assets of the insolvent business, such as:
(1) Timescale for completion – depending on the price and the nature of the business, the purchase is usually carried out quite quickly. This is to preserve any goodwill attached to the business or the assets.
(2) There is also the issue of retention of title claims by suppliers to the insolvent business who will be arguing that they continue to own the assets until the price is paid for.
(3) Employees – where an insolvent business is to be purchased, it is quite likely that the buyer will want to take some or all of the employees. However, this is a complex area of law and involves significant liabilities as to whether or not TUPE legislation will apply. Before making any decisions, our employment solicitors are greatly experienced in handling this area of law.
(4) Commercial Property [link to commercial property page] – where a business is insolvent, there are many complicated areas surrounding its property. Where the business leases its premises, under the terms of the lease the landlord may be able to immediate forfeit or alternatively it may allow for assignment on insolvency with the landlord’s consent. A landlord could withhold consent, although in this current market it is likely that a landlord would do this unless they wanted to re-develop the land. There can also be an issue with timing between the landlord granting consent and the sale proceeds being paid, where this is the case it is likely that a Licence will be put in place. Where the insolvent business owns the freehold property, it is likely that the property will need to be sold to help clear any lending over it and to repay the secured creditors. Normally, a buyer would carry out pre-contractual enquiries regarding the property but here it is unlikely that an insolvency practitioner will provide replies – the purchase is therefore very much as the buyer’s risk. Our commercial property solicitors are experienced in dealing with the circumstances when buying property or taking a lease an assignment of a lease from an insolvent business so please email firstname.lastname@example.org or call 0114 249 59 69 or visit our commercial property pages for more information.
(5) Book debts – these are normally excluded from a normal sale and purchase, but for an insolvent business this will be where there good potentially be some value. The insolvency practitioner is therefore likely to want to keep the right to collect in the book debts and will offer commission to the seller for physically collecting in the book debts.
(6) Books and records – normally these would be handed over on a normal sale and purchase as the seller has no real interest in holding on to the books and records. Therefore, the seller normally has a right to request access to the books and records for a period after completion. When buying from an insolvent business, the insolvency practitioner is likely to want to keep the books and records.
Whilst many buyers will purchase the business after the company has gone into liquidation or administration with no or little involvement with the business prior to administration, there is a procedure known as a pre-pack administration which allows a company to be placed into administration and then its business (and assets) are immediately sold pursuant to an agreement which was arranged before the administrator was appointed. The use of pre-pack admin transactions has increased in current economic climate and they are not without controversial. Before embarking on this route, we would stress to all clients that they should legal and financial advice and here at Ironmonger Curtis with Bell & Buxton we are experienced in handling pre-pack administration deals for clients. Please email email@example.com or call 0114 249 59 69 for more information.