Tips on Purchasing a business from an Insolvency Practitioner

June 21, 2019 / Guest Blogs

Purchasing a business or assets from an Insolvency Practitioner (IP) can be an excellent opportunity for a third party wishing to add to its portfolio or expand into a new area of the market.

When done correctly the transaction can be quick, and assets can be purchased at a reduced rate due to the circumstances.

There are however a number of pitfalls which can catch out the unwary.

Top practical and legal tips for an entrepreneur looking to close a deal with an IP:

  • Build a rapport as quickly as possible with the IP/their staff/their agent, as they will be making the key decisions and there may be other interested parties competing for their attention.
  • Think through the funding requirement.  You may be able to pay for the business on deferred terms, but an IP is always going to be attracted to a larger lump sum at the outset, so this could assist in ensuring that your offer is successful. If you want to pay on deferred terms be prepared to be asked to offer security or a PG.
  • Get a knowledgeable specialist insolvency lawyer on board to act for you on the transaction. Using your usual commercial lawyer may lead to delays and problems, as they may not be familiar with how these deals work.
  • Be aware that the IP will offer no warranties or guarantees as to clean title. All of the risk is on you as the purchaser. This is standard. An experienced lawyer will, however, know which points to push with the IP to get as much advantage as possible for you.
  • Find out as much as you can about the business by talking to the director/ the staff – if that is possible given confidentiality and the practicalities of the situation.
  • Consider where the business is located – do you need the premises? Is there a lease in place? Who is the landlord? Do you need a licence to occupy from the administrator once they are appointed?
  • What is the position with the employees? Be aware that under employment law (TUPE) liabilities can pass to a purchaser and these can be significant. Get specialist legal advice on this.
  • Are any of the assets subject to third party claims/ finance/ ROT (Retention of Title)? The IP can only sell such title as the relevant company actually has.
  • Be prepared to work hard over a short period to get the deal done.