Is it possible to sell an insolvent business?

Natalie Hughes of Simply Corporate

If a business is experiencing financial difficulties and is in distress, directors may believe there is little hope of selling it.

However, insolvent businesses are regularly purchased by third parties such as entrepreneurs and turnaround specialists, particularly if a company has a history of profitability.

There are strict rules that must be followed when selling an insolvent business to guarantee the best return for company creditors and specialist advice from an Insolvency Practitioner is always recommended.

How could a director sell a business under these conditions?

Pre pack sale

This is an insolvency procedure that aims to market the company assets for sale. However, the administrator must be able to demonstrate this process provides the best outcome for creditors.

Quite often the existing directors may purchase the assets of the failing business and use these to form a new company with little job loss and interruption of trade.

Sale on the open market

If working capital allows, the administrator may decide to continue trading a company in the short-term whilst placing it for sale on the open market.

This may achieve a higher sale price than a pre pack given that the goodwill is maintained.

What type of sale – shares or assets?

A buyer may be interested in purchasing the shares of a company, or only the assets. If a company has been profitable in the past, then by purchasing only the shares, and having a solid turnaround strategy, a buyer may be able to offset losses against future anticipated profits.

Enjoyed this? Read more from Natalie Hughes, Simply Corporate

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