How to sell an insolvent company (part 3)

 

Marketing your insolvent company for the best possible price

 

Hello and welcome to the third and final part in our series on how to sell an insolvent company. Soon to follow will be a buyers guide on purchasing an insolvent company at the best possible price.

If you missed the last in our series (imaginatively titled ‘part 2’) then you can access it here.

 

How is your distressed company sold?

 

Your insolvency practitioner must explore multiple avenues, presenting the business to as many people as possible and in the fastest possible time. These include a mixture of traditional and non-traditional methods such as:

 

  • Auctions
  • Press
  • Personal contacts
  • Trade magazines
  • Online

 

The last point above is huge, and can incorporate many of the previously mentioned options, which is why it is best for the insolvency practitioner to seek specific marketing advice and methodology before embarking upon this. I refer all insolvency practitioners reading this to our shameless plug above.

 

If you have read our previous blog posts on harnessing the power of Google to sell your business you will know that with the right digital marketing strategy and promotion your ideal buyer can be found. So we would definitely recommend digital marketing as an integral part of your business sale.

 

Intellectual property rights during liquidation

 

At We Sell Any Company we have witnessed many potential buyers who bid on company assets purely to get access to and ownership of specific intellectual property.

 

The right IP can potentially save one of your competitors a lot of money or used as a tool to generate more sales.

 

Patents are generally the first element that comes to mind when one speaks of intellectual property for sale but there can be significant value in several other IP areas:

Consider a brand that still has a very good public identity. In these cases, copyrights, designs, trademarks and even domain names can represent a significant investment to the right buyer.

 

Again, with the above you would be well advised to seek professional advice as your marketing and promotion strategy will be a key identifier as to how much and how quickly your assets sell for.

 

 

GDPR and your insolvency sale.

 

Another reason a competitor may want to buy your business is for your juicy list of customers. They could represent an almost immediate revenue stream, and in the case of a former competitor who offers much the same services as your liquidated company, then that sale would in all probability be quite legal.

 

The issue arises in which your customer database is wanted, but for a completely different product or service (perhaps your database consists of a valuable demographic). There are restrictions from the Information Commissioners Office (ICO)) on such sales, and you should consult your insolvency practitioner in these cases as permission may be needed from each of the names on the database for sale before they are presented with any marketing material.

 

Other GDPR issues with insolvency business sale

 

It’s worth a mention here that the insolvency practitioner should be GDPR compliant as they will also be responsible for appraising, handling – and transferring where applicable – personal data (both administrative and company).

 

What is ‘Goodwill’ in business insolvency sales?

 

We are dealing here with the special je ne sais quoi that is responsible for business success (or potential thereof).

 

In the case of insolvent company sales, goodwill is quite hard to prove due to its intangible and vague nature. And the case is often argued that if the goodwill was that good then why is the business insolvent?

 

However, goodwill is generally broken down into three areas:

 

  1. Location

 

Perhaps the business is in a prime location meaning that any relevant decent and well ran business will stand a greater chance of success purely because of its geographical location.

 

We are also seeing the location definition being expanded in recent years to also include digital locations and specific website addresses.

 

  1. Free goodwill

 

This comes down to the reputation of the company and the success of the business to date.

 

  1. Personal goodwill

 

This places a spotlight upon the person/s who have been running the business to date. If they have done an exemplary job and justly earned a fantastic reputation then a business sale in which this person stays with the company can make a difference to the price a prospective buyer is willing to pay.

 

It isn’t impossible to list goodwill as an intangible asset but it is unlikely it will carry great weight when it comes to a liquidation sale.

 

Your current employees during the business insolvency sale

 

There are two types of liquidation:

 

  1. Creditors voluntary liquidation (CVL).
  2. Compulsory liquidation.

 

The company directors initiate the Creditors voluntary liquidation and the compulsory liquidation is often faster and is as a result of a company being ‘forced’ into liquidation by creditors.

 

Unfortunately the two types of liquidation share a common factor and that is:

 

As the company is closing then that means all employees are made redundant. Whilst employees have the right to claim redundancy pay and lost wages it is unlikely they will receive much (if anything) in a company that is in liquidation.

 

Employees in this sense can be thought of as unsecured creditors (mentioned earlier).

 

 

Pension schemes when a company goes into liquidation

 

The pension pot is NOT included in the assets that can be used to satisfy creditor debts, and depending what type of pension scheme you have (defined benefit or defined contribution) retiring employees may need the help of the Pension Protection Fund (PPF) to help in the case of company liquidation where the company cannot afford to pay the retirees.

 

 

Existing supplier contracts and the insolvent business

 

The Corporate insolvency and governance act of 2020 prevents services and goods being supplied to the insolvent business to cease simply because the business is insolvent. This is probably a move to give the insolvent a business to either raise more money to creditors or even trade its way out of insolvency.

 

 

Existing customers and work in progress in an insolvency sale.

 

Technically if your company has ceased trading then all business operations must cease, which means that you no longer supply your existing customers.

 

However your insolvency practitioner might want to investigate the possibility of a ‘trade sale.’

 

What is a trade sale?

 

If the insolvent company is bought by another company that operates in the same sector then the new company can continue to trade and can provide a nice ‘neat’ exit route from administration.

 

That concludes our brief three part guide on how to sell your insolvent company. We hope it has helped.

Should you have any questions or need assistance buying or selling an insolvent company then please do get in touch here and one of our friendly team will be happy to assist you.