If you have been looking for ways to buy a business that complements the business you already own for a while, you might find it helpful to read some of our suggestions regarding the purchase of a company from an administrator or receiver.
It is possible that you have focused your attention on a company that is either a competitor of yours, someone in your chain of suppliers, or a company that provides value to your existing customer base. It is possible that you are familiar with a potential target who is currently experiencing monetary difficulties. Should you therefore wait to make a reasonable offer until after a trustee, administrator, or bank has been chosen?
A buy-out from a receiver, much like any other Management Buy-Out or MBO, will necessitate the creation of an acquiring company (hereafter referred to as “Newco”), but there will be some significant differences between this and a typical buy-out.
First of all let’s define some terms to start with:
What Is An Administrator?
An administrator is a person (or persons) appointed to administer the affairs, business, and property of a business under Schedule B1 of the Insolvency Act 2012. When appointed, an administrator becomes a court officer.
An administrator may be appointed by:
by the court,
by the company or its directors thereof or,
by the holder of a floating charge (secured lender)
What is a Receiver?
A receiver is someone who is appointed as the custodian of another person’s or entity’s property, finances, general assets, or business operations. Courts, government authorities, or private companies can appoint receivers. Receivers aim to recover and secure assets while also managing the affairs of the business in order to settle debts.
What is a Liquidator?
The liquidator’s function is to take control of the company, sell its assets, and distribute the funds to its creditors. The liquidation process is typically passed on to an insolvency practitioner by the official receiver (IP).
Some important things to Consider When buying your business from an Administrator, Liquidator or Receiver.
- You will be on a tight schedule, and you will need to get things done swiftly. Forget about the traditional purchase procedure with time limits for due diligence. If the deal isn’t completed in a brief period of time (typically just a few days), the company’s customers will have terminated their contracts, the personnel will have left, and there will be nothing to buy.
- Put a premium on commerciality. The most important thing is to build a working relationship with the external administrator and work together to ensure that the company’s core assets are safeguarded and may be transferred to you in the event of a sale.
- Prepare to take risks and factor them into the amount you’re willing to pay for the company or assets.
- If you buy the company, try to figure out why it failed. This will help you figure out what areas you should focus on if you buy it.
- Assist with the acquisition process by seeking legal, tax, and accounting guidance. Find a lawyer who can help you.
- You will almost certainly be unable to rely entirely on any information provided to you by external administrators, so always ensure that you check independently as much information as possible. Physical inspection of fixed assets and speaking with as many contractual parties as possible are two examples.
- Examine the company’s primary stakeholders and relationships: Who are the customers and suppliers? Talk to as many customers and suppliers as you can to determine whether they will back you up if you buy the company. Determine whether the company’s reputation has been permanently harmed.
- Speak with the company’s personnel with the permission of the administrators. Will they continue to work for the company if you purchase it?
- Before speaking to any firm stakeholders (contracting partners, property owners, etc.), make sure you have the administrator’s permission.
- Make sure you have enough money to not only buy the company, but also to keep it running until it becomes profitable again.
- Request searches of the Personal Properties Securities Register to determine which securities are registered over the company’s assets and which assets you will most likely purchase at settlement. If there are various security providers, any arrangement you strike may require multiple clearances.
- Obtain official releases from all secured parties at completion if possible; however, due to the short timeframe, be prepared to settle the acquisition and deal with formal releases afterwards.
- Buying from liquidators rather than voluntary administrators or receivers may necessitate different considerations. Make sure you know the distinctions between the distinct types of external administration.
- Recognise that it’s improbable that the time will have gained all third-party consents the project is finished. Attempt to reach out to third parties and acquire their “in principle” approval, as well as formal consents, following the settlement.
- Don’t spend too much time negotiating the selling agreement; instead, examine the risks and fight for the most important commercial aspects. It frequently does little and merely slows down the process. Accept, for example, that no significant warranties or indemnities will be issued.
- Make sure you realise that if any component of the firm turns out to be different from the facts that were offered to you, you will be unable to file a claim against anyone.
- Remember that the administrator’s appointment may only be a few days old, so he or she may not know much about the company. Don’t mix up the administrator with the company’s previous management.
Questions to ask yourself before you go ahead with the purchase
- Is the deal going to be an asset sale or a business sale? Will you have to acquire stock in the company instead?
- Will you require some or all of the company’s current leased properties? If this is the case, speak with the respective property owners to see if they will support you purchasing the firm.
- Should purchase the company’s debts? How likely are you to be successful in collecting the debts?
- Do you realise how much risk you’ll be taking on if you agree to take over (part of) the employees? Make sure you’re aware of the complete amount of annual leave, and other benefits you’ll be assuming, and factor that into your price range.
- Should you buy the entire firm or just some of its assets? While it may be preferable to only buy some assets and leave others behind, keep in mind that external administrators will try to maximise the return for creditors, so buying the entire business and thus taking on some or all of the liabilities will generally be preferred by the external administrator.
What else do I Need to Take into Consideration?
When acquiring a company from a receiver or administrator, it is essential to take into consideration that these parties are typically under a great deal of pressure to finalise the purchase as rapidly as humanly possible. Instead of focusing on finishing the standard procedure for making a deal, which includes negotiating the heads of terms, doing extensive legal and financial due diligence before creating elaborate legal documents, the primary idea is to concentrate on making the deal work as effectively as possible.
This is especially true in the case where the company continues to operate as normal while it is being sold at the same time. In the event that key employees leave, customers may transfer their accounts to a competitor.
Due to the fact that time is of the essence, you will be required to take a commercial stance on many aspects of the transaction. Normally, these aspects would be addressed in the legal documents; however, you must do so because time is of the essence. Your solicitor will look into certain things, such as who owns the property, what the terms and conditions of working for the company are, and whether or not any assets are subject to a charge.
However, the administrator or receiver are not the owners of the company; they are merely third-party sales agents. As a consequence of this, they will not guarantee legal title to the assets and will not accept any personal liability related to the transaction. The price that you propose should consider the fact that standard contractual provisions like warranties, indemnities, and completion accounts will not be provided, as these things will not be covered by the agreement. As a general rule, the company will be sold in its current condition.
A buy-out should, therefore, involve the acquisition of the business’s goodwill and underlying assets instead of shares in the company itself. This is because contract structure dictates that a buy-out should involve the purchase of the firm. This is due to the fact that when a Newco acquires an existing business, it takes on all of the liabilities of the acquired firm, regardless of whether or not the buy-out team is aware of those liabilities. During the process of buying assets, one should only acquire certain assets and liabilities.
When time is of the essence, it may be difficult to secure financing for the acquisition of the property. Because it has become more difficult to obtain traditional fundraising or venture capital money during this crisis, buy-out teams have been forced to become more inventive in order to succeed.
In the recent years, invoice discounting companies and banks that provide asset-backed financing have moved into the buy-out sector, which may provide a useful source of money. In addition, the buy-out sector has seen an increase in the number of firms that provide asset-backed financing. As an additional demonstration of their dedication, individual members of the buy-out team might be asked to contribute some of their own money to the transaction.
The stock and assets of a company that is currently in administration or receivership need to be thoroughly evaluated. A substantial number of providers include clauses referred to as “retention of title” in the terms and conditions of supply they make available to customers. As a result of these clauses, the provider continues to hold title to the goods until payment is made. It’s possible that the buy-out team will find out that the supplier or another secured creditor is claiming title to an asset that was allegedly sold to the Newco by the administrator. In these situations, Newco may be required to return the products and indemnify the administrator or receiver against any claims brought against them.
These are just some of the concerns that may arise during the process of an administrator or receiver buying out the company.
Although there may be legitimate business reasons for purchasing an insolvent company, it is absolutely necessary for the buy-out teams to be aware of the risks involved and to seek adequate guidance from an expert who is adequately qualified such as a business consultancy or business concierge service.
The One World offers such services and can help you every step of the way if you are looking to buy a company that is in liquidation or receivership.
The professional team at The One World have collaborated with countless individuals and overseas businesses over the years and offers bespoke tailored solutions to each and every client.