Selling an insolvent company in 2022
Hello and welcome to the next in our series of posts on how to sell your company, for the best possible price and in the fastest time.
This week: How to sell an insolvent company.
According to the insolvency service, the first quarter of 2022 showed a 112% increase over the same period last year and is 6% higher than the forth quarter of 2021.
The number of creditor voluntary liquidations is increasing by 117% year on year and is the highest it has been since 1960.
The government pandemic help for UK based companies is coming to an end and we are now left in the desolate wasteland of the post pandemic, post BREXIT aftermath.
I didn’t present these statistics just to cheer you up; it was also to say that if you have a business that has gone (or is going) into liquidation then there is no shame. We are all going through an exceptionally difficult time at the moment.
But at the very least you want to navigate the jargon minefield, sell your insolvent company and get a reasonable price for it, and that’s what this post is all about.
Selling a company that is insolvent.
I’m going to make two major assumptions to get us started and save time:
- You have already made the decision to put your company into liquidation. If you have NOT yet made the decision to place your business into liquidation but your company is in financial distress then one of our previous blogs (how to sell a company even if it is in debt) may be able to help. Click here to access this post.
- You are the director of a limited company.
What is corporate insolvency?
Put simply, if your limited company cannot afford to pay its debts and the outgoings are in excess of the money you have coming in, then by British law your business is considered to be insolvent.
Some companies can survive this and even continue trading providing certain conditions are met: calling up your creditors to reach an informal arrangement or entering the company into a voluntary arrangement (discussed later) for example.
You put the company into administration and enlist the help of an insolvency practitioner with a view to selling. This can also be broken down into the sale of company shares, assets or both.
The main differences between selling an insolvent and a solvent business:
- The insolvency practitioner’s solicitors rather than that of the buyer produce the first draft of the sale agreement.
- Warranties and representations are not often given, and any that are would be very limited
- Statutory terms and conditions for the protection of a buyer implied by the Unfair Contract Terms Act 1977 will be explicitly excluded.
- Normally no title guarantee is given.
Is Pre Pack administration right for your company?
Prepack administration is a complex and costly process so will normally only be viable for medium to larger sized enterprises.
If your company cannot afford to pay its creditors to the extent by which liquidation is the only option then a prepack administration may be a viable route for you and your fellow directors.
Using the prepack method, you effectively close down your current company (oldco), sell your company assets to the existing directors or another third party then and open a new company (newco) and continue to operate – potentially with your existing client base and in the same premises as the old company.
The whole process from start to takes around 10 to 15 days though can take slightly longer and the proceeds from the sale of company assets go to the company creditors in final settlement.
As you can imagine, creditors are not often fans of receiving a reduced settlement on debts owed, however as the company was not able to pay anything prior to the asset sale, then receiving something (as they say) is better than nothing.
That’s about it for this first post. If you want to jump straight to part two then click here.
If you are an insolvency practitioner or a business owner and you are looking for help marketing and getting the best price for an insolvent business then contact us here and one of our team will be happy to help.