Purchasing Insolvent Businesses

Company Insolvency

If you are looking to buy a business out of an insolvency process then it is essential that you are able to act quickly. The process is unlike that of a normal business purchase as the time frame for the completion of a sale can be extremely compressed.

It is essential therefore that you seek the appropriate advice from a professional who is experienced with dealing with such situations, ideally a commercially minded, entrepreneurial and experienced Insolvency Practitioner (“IP”). Chamberlain & Co often sell businesses through insolvency processes and advise purchasers buying businesses from other Insolvency Practitioners.

Buying a business out of an insolvency process can be a great opportunity. We have advised one client on a number of acquisitions out of insolvency processes that has added over £100m to turnover. The appointed Insolvency Practitioner (‘IP’) has a duty to consider any offer and ensure that it is the best result for the creditors involved, our inside knowledge and contacts can sometimes re-open sales opportunities which appear to have been missed.

There are many areas that need careful consideration when purchasing a business from an insolvency procedure, while not comprehensive, the following matters are relevant:

Due Diligence

There is often insufficient time to conduct thorough due diligence regarding the business and/or assets which are being sold without warranties or guarantees.

Warranties and Indemnities 

The IP may request that the buyer provide indemnities and undertakings in the purchase contract in respect of any liabilities that may arise from the transaction. This may include dealing with third parties who may have a claim over some of the assets.

Premises 

If the business trades from leased premises and these are required for the immediate continuation of the business then it is essential that arrangements are made that the business can remain at the premises.

There is often not enough time to secure a lease with a landlord so it may be possible to obtain a License to Occupy from the IP enabling time to trade while the new owners negotiate an assignment of the old lease, a new lease or arrange other premises.

Employee Liabilities

It is critical that the potential purchaser understands the employee liabilities that will transfer to the buyer upon sale. The Transfer of Undertaking (Protection of Employment) Regulations 2006 will usually have the effect of transferring employee contracts to the buyer automatically. It is important that specialist advice is obtained to understand the position.

Working Capital

It is essential that you prepare forecasts to understand the working capital requirements of the business.

Make us the first professionals that you contact

The above are only a few areas you need to consider when involved in a purchase out of an insolvency procedure. Chamberlain & Co can help deliver successful acquisitions out of insolvency processes, in tight time frames, whilst minimising the risks and delivering great value.

We can help assemble the most appropriate team of professionals to assist including suitable funders if appropriate.