Of the insolvency processes available for a trading business, administration is the most common. When a company goes into administration, it can still continue to trade legally whilst an appointed administrator (licensed insolvency practitioner) works to rescue the company that has become insolvent.
In some cases, the best cause of action is for the administrator to look to sell the business and its assets. This could be through a pre-pack administration, where a business negotiates and agrees on the sale of their business and/or assets before an insolvency practitioner is appointed (allowing for all relevant documents to be signed and implemented immediately after an administrator is appointed), or a standard administration sale.
A business in administration may be advertised widely, or simply to a select group of potential buyers.
If you are interested in buying a UK company in administration, we are here to provide you with information on the steps you should take and factors you should consider.
Ask for advice from a specialist
Even if you are experienced in buying businesses, it’s important to remember that buying an insolvent business is a different process. As a result, you should seek specialist advice not only in terms of accountancy, but in the legalities of buying an insolvent company. The more information you can gain, the better placed you will be at the bidding stage.
When buying an insolvent company, you should also understand the insolvency process and the separate procedures. For example, when a business is in administration, the administrator is tasked with achieving the best result for all creditors, whilst when a business is in receivership, receivers owe a duty to the creditors who appointed them – this can have a strong influence over the type of bid they will accept.
Insolvent companies are sold as seen
Unlike other business sales, administrators will usually sell an insolvent company as seen – it’s unlikely they will provide guarantees of the business or assets being sold, as they will likely have little knowledge of the business and will not risk increasing the seller’s (or their own) liability.
If you are buying an insolvent business, you must rely on your own analysis, and base your bid on any potential risk.
What is for sale?
In most cases, all assets of an insolvent business in administration will be for sale. Whilst administrators will likely provide a list of assets available for sale, it will be up to the buyer to ascertain what is for sale, but also what they want to buy.
- Employees – In most cases, the contracts of employment will transfer with the sale of the business. This includes ongoing wages, along with arrears in terms of wage negotiations and holiday entitlements. Liabilities linked to employees can be one of the biggest potential costs for a buyer.
- Licences – Establish if a business needs a specialist license or registration to operate. Some licenses may not be transferable, whilst others may have a time lapse, or specific rules on insolvency.
- Business premises – If the premises are owned by the seller and are for sale, do you want to buy them? If the premises are leased, you will need to consider whether you wish to negotiate a new lease or lease terms.
- Valuable contracts – If there is significant value in key contracts, then the seller may need their consent to transfer the contract to a buyer. You may wish to speak with other parties involved in key contracts in order to ensure consent is given so that valuable contracts can continue.
Buying a Company in Administration
Time is limited so it’s important to act quickly. In terms of due diligence, in the time you have, aim to visit the business’s premises, speak to the key people – as well as directors, you should aim to talk to suppliers and key customers.
Given that time scales are so short, in some cases, buyers may drop out, or even drop back in as negotiations for the sale of the company progress. To stand the best chance of a successful bid for buying a business in administration, you should demonstrate that you are able to complete the transaction as quickly as possible and have the funds at hand.
For specialist advice in buying a UK company in administration, contact Beacon LIP, specialists in business and company insolvency solutions.