Buying the business of an insolvent company

By LBV

08 Jun 2011

While the first few months of 2011 have provided some encouragement in terms of economic recovery, unfortunately there are still some businesses which have not been able to survive the recession, and have become insolvent.

For those more buoyant businesses, this may provide opportunities to snap up a bargain. There are, however, certain things to bear in mind when buying an insolvent company.

The Administrator
Usually where an insolvent company is available for sale, it will have gone into some form of administration, and as such it will be the administrator, and not the directors, who will be running the company. A prudent buyer should therefore take steps to ensure that the administrator has been properly and validly appointed, either under the terms of the court order, or the security documentation.

Timing and price
It’s in the interests of all parties to ensure that any sale goes through as quickly as possible. Once a business becomes insolvent, its status in the marketplace will disintegrate, and debtors and creditors will become increasingly disinclined to deal with that company. Similarly, the sooner the administrator can get his money, the sooner the creditors can be paid out. Bear in mind that the administrator is under a duty to obtain the best price reasonably obtainable in the circumstances (although this will rarely be the full market value).

Ownership of assets
When buying the assets of an insolvent company, it is essential to confirm that the company is the owner of the relevant assets. This is especially relevant where there is a group structure in place. In addition, especially where the company is a manufacturer or supplier of goods, certain assets may be subject to retention of title provisions (assuming the creditor has not been paid), and the buyer will have to take that risk on purchase.

Warranties
A major feature of any trade sale agreement is the warranty schedule, giving protection to the buyer. When buying from an insolvent company, the administrator will invariably refuse to give anything but the most basic warranty protection, on the basis that they are not privy to the relevant information, and that they do not want to be in a position whereby they have to repay money (which may have been distributed to creditors) once payment has been received. This lack of warranty protection should however assist the buyer in price negotiations.

Employees and TUPE regulations
Contrary to popular belief, TUPE does still apply when buying an insolvent business. A buyer will rarely wish to take on the entire workforce in these circumstances, and specialist advice should be taken to ensure the relevant obligations to inform and consult are complied with. There may be ways to deal with this situation, and the existence of the National Insurance Fund can assist with certain liabilities, however great care should be taken when seeking to dismiss any employee.

David Filmer
Harrison Drury Solicitors

 

Enjoyed this? Read more from LBV

Latest news

1

Breck to deliver £150m of affordable homes over four years Breck Development In Progress

Breck to deliver £150m of affordable homes over four years

18 Jul 2024

2

Business board launches to support county's economic growth Lancashire Business Board

Business board launches to support county's economic growth

18 Jul 2024

3

Thirteen new contract wins in three months for seoBusiness SeoBusiness Contract Wins

Thirteen new contract wins in three months for seoBusiness

19 Jul 2024

4

Blackburn Hotspots: Filling a big hole Blackburn Hotspots Lineup

Blackburn Hotspots: Filling a big hole

19 Jul 2024

5

GoDaddy chief returns to Lancaster to collect honorary degree Aman Bhutani

GoDaddy chief returns to Lancaster to collect honorary degree

19 Jul 2024

Bec Web Strip 980x120
Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
Lancashire Built Environment Conference
BEC 315 X 315 Px
Networking
25 Sep 2024

Lancashire Built Environment Conference

Conference and Exhibition Centre, Winter Gardens Blackpool, FY1 1HL

08:30 - 13:00

RISE - The Academy for Female Leaders and Managers
WENDY BOWERS RISE Illustrstion copy.jpg.jpg
LBV Hub Seminars
11 Jun 2024 - 04 Dec 2024

RISE - The Academy for Female Leaders and Managers

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:00 - 16:30

Preston Freelancer MeetUp and Coworking Day
Screenshot 2024-06-13 at 13.55.10.png.png
LBV Hub Networking
30 Jul 2024

Preston Freelancer MeetUp and Coworking Day

Society1 Coworking Space, Preston, PR1 3LT

10:00 - 12:00

Skills Bootcamp in Procurement - Cohort 1
Blue-Modern-Land-Travel-Youtube-Thumbnail-2-1024x576.png.png
LBV Hub Seminars
30 Jul 2024 - 08 Oct 2024

Skills Bootcamp in Procurement - Cohort 1

Community & Business Partners CIC, Blackburn, BB2 3UA

09:30 - 13:00

Chamber Breakfast Networking
Chamber Logo1.png.png
LBV Hub Networking
31 Jul 2024

Chamber Breakfast Networking

Pye Motors, Morecambe, LA3 3PF

08:00 - 10:00

Scaling your revenue: From zero to £1m in 60 months
CBP-logo LBV.png.png
LBV Hub Webinar
31 Jul 2024

Scaling your revenue: From zero to £1m in 60 months

Online, Online, Online

08:00 - 09:30

Online Women's Health Clinic
clinic.png.png
LBV Hub Webinar
06 Aug 2024

Online Women's Health Clinic

x, Online, x

12:00 - 12:00

International Coworking Day Open Day
1.png.png
LBV Hub Social
09 Aug 2024 - 09 Aug 2024

International Coworking Day Open Day

Society1 Coworking Space, Prestin, PR1 3 LT

10:00 - 13:00

Knowledge & Networking: Basic Digital Marketing
Chamber Logo1.png.png
LBV Hub Seminars
12 Aug 2024

Knowledge & Networking: Basic Digital Marketing

Lancaster Golf Club, Lancaster, LA2 0AJ

14:00 - 13:00

Understanding Menopause
menopause.png.png
LBV Hub Webinar
15 Aug 2024

Understanding Menopause

x, Online, x

12:30 - 13:15

Sub36 Networking Event - The Bee Centre
Sub36 Socialbee Centre
Networking
15 Aug 2024

Sub36 Networking Event - The Bee Centre

The Bee Centre, Chorley, PR6 8LZ

15:00 - 17:00

Mini Networkers - Family Fun Morning
CBP-logo LBV.png.png
LBV Hub Networking
16 Aug 2024

Mini Networkers - Family Fun Morning

Community & Business Partners CIC, Blackburn, BB2 3UA

10:00 - 13:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV116 Online Graphic
Subscribe now

Weekly news bulletin