Can you Sell Your Insolvent Business?

The first and most crucial step involves consulting with insolvency practitioners or qualified solicitors. Attempting to sell an insolvent business without professional guidance can lead to severe consequences, including legal complications and personal liability.

Insolvency practitioners have the expertise to advise on the best course of action, whether a pre-pack administration or a sale on the open market.

This involves compiling a detailed list of assets, including physical assets, intellectual property, and any outstanding invoices, as well as a comprehensive outline of liabilities.

It’s essential to consider whether the sale will involve shares or assets, as this can impact the business’s attractiveness to potential buyers.

Several routes are available for selling an insolvent business, each with benefits and drawbacks. The most common methods include:

• Pre-pack Administration: Selling the business and its assets to a new company before appointing administrators. This option often preserves more of the business’s value, can be quicker than traditional sales, and may attract interest from existing directors or third-party buyers. However, the administrator must demonstrate that this process provides the highest returns for creditors to prevent abuse.
• Sale on the Open Market: If sufficient working capital is available, the administrator may decide to trade the company in the short-term before placing it for sale on the open market. This can achieve a higher price than a pre-pack due to increased competition, but the availability of cash to trade is a key issue.

Preparation involves making the business as attractive as possible to potential buyers. This might include resolving any legal disputes, securing intellectual property rights, or tidying up financial records.

It’s important to note that the lack of time for a comprehensive due diligence process may adversely affect the sale, as buyers won’t benefit from the additional confidence that warranties and indemnities bring.

Marketing an insolvent business requires a strategic approach to finding suitable buyers. This often means reaching out to competitors, suppliers, turnaround specialists, entrepreneurs searching for struggling businesses, or other stakeholders who might have an interest in purchasing the business or its assets.

Negotiating the sale of an insolvent business involves balancing the interests of creditors, shareholders, and potential buyers. The aim is to achieve a sale price that maximises returns to creditors while ensuring the transaction is completed efficiently and legally. It’s crucial to consider potential issues, such as the transfer of contracts and claims under TUPE (Transfer of Undertakings (Protection of Employment) regulations), which may impact the sale process^[1]Trusted Source – GOV.UK – Business Transfers, Takeovers and TUPE.

A pre-pack administration involves arranging the sale of the business or assets before the appointment of an administrator, who then executes the sale immediately upon their appointment. This process is often quicker and more discreet than a traditional administration, where the administrator trades the business for a period before seeking a buyer.

Insolvency practitioners have a statutory duty to obtain the best price reasonably obtainable for the assets of an insolvent company. However, they must also consider the potential deterioration of the business’s value if the sale process is prolonged. To strike this balance, insolvency practitioners will often set a limited timeframe for the sale process and engage in targeted marketing to attract serious buyers. They may also consider delaying the sale if they believe doing so will result in a better outcome for creditors.