Insolvency Group: Approach Purchase from Adminstrators with care

With the number of businesses considering formal insolvency procedures in the near future, one of those options is to purchase assets from an Insolvency Practitioner through the process of Administration. One of the reasons for the success of administration particularly in pre-packed administration is the risk to the purchasers. Perhaps more so when the purchaser has no link to the original company.

Purchasers must consider some of the following matters when considering purchasing from an Adminstrator:

1. In normal B2B business sales a seller will be required to give guarantees and warranties as to certains aspects of the business. Where an Adminstrator is selling due to that person lack of detailed knowledge of the company’s business they will not give this statements about the business and indeed it would be unwise to do so;

2.As part of the normal sale process the sellers usually warrants or guarantees that the assets forming part of the business are wholly owned by that person and capable of being sold. An Administrator may not always be able to do this as in most cases the Administrator will only have limited information about the company

3.Where premises are involved in the sale the Adminstrator is unlikely to clear the buildings making them suitable for operation and the additional cost of so doing must be factored in. Indeed it is often the case that a new lease (if the property is leasehold) will need to be negotiated in a very short period of time.

4.Quite often an Administrator will be contrained by one of the creditors, usually one holding a security in the company’s assets the ensure an optimum price. To ensure that this is capable of being achieved any company may have to pay a part of the premium over an extended period of time. This means that the new company’s assets may be charged by way of a debenture.

5. When buying through the adminstration process the purchaser must be aware that the continuing business that they buy may be tainted by the insolvency of the previous company and should have in place novation agreements or at least have negotiated these in advance.

The sale out of adminstration is fraught with many traps, and despite the insolvent nature of the process (where little money exists) appropriate legal advice is essential.

Brendan O’Brien

 

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