Selling a distressed business

The global Covid pandemic has had an unprecedented impact on companies.  Businesses that traded profitably pre pandemic are now facing significant difficulties, some of which may feel insurmountable by directors and business owners.  

Whilst a company is in a distressed position directors have a duty to act in the best interest of all creditors.  

If directors are considering a sale of the business, they must prepare the best they can:  

  • Financial records and information should be accurate and up to date; and 
  • They should have a good understanding of what the company and/or its assets, including any ongoing contracts are worth.

All possible options should be considered such as:

Management buy outs: Do the current management team have sufficient resources, expertise and the appetite to acquire all or part of the company that they manage?

Share Capital: Can additional funds be raised from existing shareholders or by way of the issuing of new share capital?  Alternatively, is a sale of the company’s shareholding viable?

Venture Capitalists: Can outside investment be raised?

Sale to a competitor: Have any previous approaches been made or interest been shown by competitors to purchase the company, if so, these opportunities should be fully explored.

Pre-Pack Administration Sale: Where the underlying business is viable the company may enter administration with a view to the sale of the whole or part of the business.

Liquidation: sale of the company’s business and assets is undertaken by the liquidator.

Seeking expert advice and assistance from a licenced insolvency practitioner as soon as possible is key.

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