Buying a business from an Insolvency Practitioner

Business Pink April 2005

Do you want to find a business that has a long track record, well-established systems, personnel who know what they are doing, good client/customer base - and is cheap to buy? They don't come along very often. If they do, sellers have high expectations and set a price accordingly - that is, if the owners are in control of the sale. But have you considered buying a business which is in Receivership or Administration?

The very fact that the seller is insolvent shows that there is something wrong. Sometimes it is a lack of work, or the product just does not make profit. But sometimes, despite being potentially profitable, the management is inefficient or the business has historical debt. These are the businesses worth buying from Insolvency Practitioners (IPs).

IPs will invariably market a business through agents and give a reasonable time for offers to be made. However, during that process they need to keep the business trading to maintain its goodwill value. As each week passes, the employees have to be paid, suppliers may not continue to supply and customers make various excuses not to pay. It is a difficult time for all concerned including the IP, who must decide how best to keep the business ticking over.

IPs do not like to trade for long. They want to be out as quickly as possible with few, if any, loose ends. If you want to buy a business from them you need to act quickly. Once a deal is agreed, it is not unusual for the IP and the purchaser and their advisors to complete the transaction within a few days

Because an IP wants a quick exit, he will look to the best deal to achieve that. If an offer involves more money but only when certain conditions are fulfilled, the IP is more likely to accept a different, lower offer which is a cash sale. The availability of the funds is a very important factor in the IP's deliberations.

When it comes to the details of the sale, IPs are prepared to sell the assets and retain the debts. However, prospective purchasers should watch for the following:

1 No matter what, the employees' rights will be taken on by you on purchase of the business.

2 Retention of title claims become your problem.

3 The business is sold "as seen". You cannot ask for some or all of your money back at a later date.

There are some good businesses to pick up from IPs. Many companies are on the lookout for those opportunities. It is not only a means of reducing the competition but also a means of getting into a whole new customer list. Cash rich businesses, wishing to expand should find out who the IPs' agents are and keep in touch with them. Then when the right business is available, you should get ready to move quickly. If you don't, someone else will.

Mike Sharp