How to sell an insolvent business
When a business runs into financial difficulty, this will affect its saleability and the appetite of business buyers to seek out the business. Although it is possible to sell an insolvent business, there are strict rules that must be followed to guarantee the best return for company creditors in a compliant manner.
As the company director, it’s your duty to act in the best interests of creditors when promoting the success of the company. As the financial difficulties of the business increase, the duty of directors to balance the interests of creditors against those of the shareholders also increase.
It is possible to sell a distressed business although the path that you take will depend on the debt level, the extent of creditor pressure and the viability of the business.
How to achieve a sale
If you wish to sell an insolvent business, there are options available. An insolvent company presents an opportunity to business buyers that are on the lookout to buy a competitively priced business. The insolvent business will likely be handled by an insolvency practitioner who will look to either conduct a pre-pack sale as part of the administration process, or a sale on the open market.
Sell a business out of administration – Pre-pack administration is a formal insolvency process that consists of arranging the sale of the business or its assets before a licensed insolvency practitioner is appointed. If there’s hope that the business can be sold as a going concern as there’s a buyer lined up, a pre-pack sale can help secure the future of the insolvent business. Company assets must be sold at a fair market value to generate a return for creditors.
Sell a business on the open market – Selling the business on the open market increases competition and the number of buyers likely to view the business opportunity. The administrator may set out to sell the business on the open market to achieve a higher price as there’s a larger pool of potential buyers.
- Previous sales and acquisitions experience
- Sector specialisms and average success rate
- Sales value expectations and growth potential
What to think about when selling an insolvent business
When selling an insolvent business, your business buyer must be on the same page. Establish what’s included and excluded as part of the sale, such as contracts, and what warranties and indemnities are provided. Due to the nature of the sale, buyers may expect the transfer of every contract, whereas this might not be the case.
Employment regulations, such as Transfer of Undertakings (Protection of Employment) TUPE must be considered when the business is sold. Selling a business out of administration is often conducted quickly to minimise disruption to employees, customers and stakeholders, such as company creditors.
While it is possible to sell a business with debt, careful consideration must be taken to guarantee the best outcome for company creditors while the sale is handled by a licensed insolvency practitioner. For more information on how to find a buyer for an insolvent business, get in touch with a member of the Selling My Business team.