Selling an insolvent company in 2022?
Hello and welcome to part two of how to sell an insolvent company.
If you missed part one then you can access it here. This post aims to help clear the muddy waters of business insolvency for business owners and to offer sales, marketing and promotional ideas for getting the best price for your insolvent business.
Assuming that you have read part one so lets dive right into part two:
Due diligence when selling an insolvent company
Due diligence is one of the most important parts of a ‘normal’ business sale. It makes sure all of your proverbial ducks are in a row. Company financials, employee contracts and all other relevant pieces of information are laid bare for potential buyers to see.
The problem with selling a company that is in liquidation is that the due diligence is done rather fast or (in some cases) not at all and the business can even be ‘sold as seen.’ Normally the due diligence and statement of affairs is conducted by the business owners’ representative (lawyer or accountant). On occasion, an insolvency practitioner will conduct your due diligence.
As a buyer you would have to weigh the pros and cons here. Assets are sold at market price, which can be an incredible saving for any prospective buyer, but it would be prudent to carry out some of your own investigations before entering into an agreement.
Secured and unsecured business creditors
We’ve already mentioned that the proceeds for the sale of your business go to your creditors, so I’ll delve a little deeper into that now for you:
Your business will, in all likelihood, have both secured and unsecured creditors.
The secured creditors are the ones that get paid first. They have a formal arrangement with the business and the business has listed them with company’s house as one that has a fixed charge associated with a particular asset at creation.
Fixed charge assets can include land, property, machinery, copyright and trademark.
Unsecured creditors are the last to get paid, and these can include:
Contractors, customers, suppliers and HMRC.
Think of a pride of lions at dinner. Once the Alpha (secured creditors) has had his fill, then the rest (unsecured creditors) can take what’s left.
Excluded Assets in an insolvency sale
Not all assets will be sold as part of an insolvency sale. Leased goods (vehicles or machinery for example) and mortgaged property in some cases are excluded.
Hired goods are returned to the lease company and monies from the sale of property are used to compensate the mortgage company.
Once the company’s assets are sold, then the remainder of the debts are written off, unless of course company directors have signed a personal guarantee, meaning if the business cannot afford to pay the debts then certain individuals take on said burden.
This can lead to bankruptcy in some cases, so be careful what guarantees you make throughout the life of your business.
How are your business assets valued and sold?
As much as you’d like to, you don’t value your own assets regardless as to how much sentimental value Florence the Fluffy Forklift has for you.
Your insolvency practitioner enlists an independent auctioneer or surveyor, to get the true value of your assets.
Your insolvency practitioner has two goals.
- Get as much money as possible for your assets
- Sell the business as fast as possible
In order to sell the assets quickly, you will find goods are often sold at (or below) market value so it might seem like the two objectives that the insolvency practitioner has (above) are actually in direct opposition with one another.
To combat this and make his/her/other job easier the insolvency practitioner may enlist the help of an industry specific marketing expert to help promote the company online.
Today’s shameless plug
We are writing this post and giving free advice so we’ve earned a small plug right?
Pleased you agree, here goes:
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