The Restructuring, Insolvency and Bankruptcy Group considers the legal, commercial and practical issues.

Do a deal quickly!

Often it is in the interests of both buyer and seller to negotiate and complete a deal as soon as possible to preserve value in the business before goodwill is tainted with any stigma of insolvency or key employees, suppliers or customers leave the business.

Buy the business not the shares

Buying the business leaves most liabilities with the old corporate shell.  You can buy the shares if you are interested in tax losses but you would need to do a lot of due diligence to find out if tax losses are available and often there isn’t time. You can sometimes hive down assets into an SPV and buy the shares in that.  Share sales do depend on the person in control of the target being in control of the parent as well to approve any share sale.

Don’t expect to get much information about the business

Given timing any due diligence is usually short and generic. The people managing the company's affairs when you buy it may have only just been appointed and may know very little about the way the business operates.

Cash is king!

Insolvent sellers are not usually interested in doing deals for deferred consideration or shares in the buyer. They prefer taking a lower offer from an up-front cash buyer.

Employee liabilities will usually transfer to the buyer

Employee rights usually transfer automatically on a business sale under UK legislation. Getting the seller to sack employees immediately before any transfer will not usually solve the problem.

Sometimes it's hard to know what you are and are not buying. Be prepared to renegotiate business terms

Often it is difficult to know exactly what is included in a sale. Sometimes the seller himself does not know because of the company's circumstances. An insolvency office-holder will be careful to sell only "such right title and interest as the company may have" in the business or assets. This may mean assets are subject to third-party ownership or other rights and a buyer may take subject to those rights forcing the buyer to agree separate deals with them.

Contract terms with existing customers and suppliers may make it difficult for you to take over the relationships and you may need to do new deals with them.

Don’t expect any representations or warranties from the seller

If insolvency office-holders have taken over the company, they will not give any representations or warranties. They will argue they don’t know enough about the business, and they are not prepared to incur the risk of personal liability. Specific exclusions are standard in sale contracts.

Be prepared that assets may belong to others

If the company's premises is held under a lease, insolvency will usually entitle the landlord to take it back or demand payment of arrears before he will allow the buyer to take over the lease. If you want to keep the premises you will usually have to negotiate separately with the landlord for a transfer of the lease.

Similarly, stock and work in progress may be subject to retention of title claims by suppliers who will be entitled to come and get its assets back, even if they have been purportedly sold to you. Assets may be subject to security and the buyer may need to get a court order to allow it to sell them to the buyer free from that security.

Expect some continued dealings with seller

You should expect the seller will want to have continued access to certain books and records and employees, in particular if it has opted not to sell the debts.  Try to document how and when this access will work in practice.

Beware of pension deficits

A buyer will need to find out whether the seller is liable for a pension scheme deficit.  If so, the buyer will need to get advice on the protections and regulatory clearances they will need before a buyer should continue with the deal.