Can you Sell Your Insolvent Company?
Technically the answer is yes but in many situations this has to be done with the approval of an Insolvency Practitioner, either as part of an administration generally or as part of a pre-pack sale.
It is also possible to start marketing and in fact sell your business when it has significant debts but may not yet be technically insolvent. However, this is likely to be difficult, whether you try to sell assets of the business or the company shares.
A buyer will almost certainly be very wary, especially if the sale is very cheap, that the transaction could be challenged by creditors. Selling a business with very significant debts to a friend, family member or known business acquaintance or anyone else at an undervalue is very risky. The transaction could later be set aside and you may even face the prospect of personal liability.
If you need advice on what is or is not possible and/or advisable please do give us a call, email or use the live chat.
In this post, we shall explore how you can paint your insolvent company in the best possible light to attract venture capitalists and achieve the best possible resolution for you and your business.
Selling a Business in Administration or Liquidation
A business enters into administration when it is struggling financially and has been threatened or issued with legal action. At this point, control of the failing company is handed to administrators, who work to protect the creditors’ best interests. If the business can be sold, this may allow it to continue trading; helping to safeguard jobs and maintain existing contracts.
Selling Assets from a Company in Liquidation
In the case of liquidation, the business cannot be sold as a single entity but investors can still buy the company’s assets, such as premises, vehicles or inventory.
The sale of any assets is handled by the insolvency practitioner who is legally required to appoint an independent valuer, such as a chartered surveyor.
5 Tips for Selling an Insolvent Company
Whether there are a number of interested parties, or just one, it’s important to prepare and supply the necessary information you need to show the true value of your business.
Here are a few practical steps you can take:
- Highlight the value in your company –An investor can choose to buy into in a failing business before the administration process, or wait for an administrator to be appointed to potentially buy it more cheaply. Your role in this process is crucial. By demonstrating the value in your business, you can help to secure the most favourable resolution for you and your business.
- Sell the business before reaching insolvency – There may be value in the current structure of your business, and this could be more easily maintained if a failing business is bought before a formal insolvency procedure begins. There may also be valuable ongoing contracts your company is servicing, which could be lost if an insolvency process begins.
- Maintain accurate financial information – Being able to provide a prospective buyer or investor with up to date and accurate financial records and forecasts will be a huge benefit for potential purchasers and provide the reassurance they need.
- Encourage management buy-in –A company will be easier to turnaround if it has a unified and committed management structure that is dedicated to making it work. Once the cause of the problem has been rectified, a loyal and devoted board can drive the business forward to get it quickly back on track.
If you would like more information about how a pre-pack administration can help you achieve the best solution for you and your business, speak to one of our specialists by calling 0800 074 6757 or emailing: info@companydebt.com today.
