How to buy businesses in administration or liquidation

The process of buying businesses in administration can be complex, but there are a few key things to keep in mind. First, it’s important to research the business carefully.

This includes looking at financial statements, assess the value of the assets, and speaking to the administrators to get a sense of the situation.

Second, it’s important to make an offer that is fair and reasonable. The administrator will be looking for the best possible outcome for all parties involved, so it’s important to put forward a credible offer.

Finally, it’s important to have realistic expectations. Buying a business in administration is often a risky proposition, and there is no guarantee that the business will be successful. However, with careful planning and due diligence, it is possible to find businesses in administration that represent good value and have a high chance of success

Can you buy a company in administration

Yes you can buy a company in administration as there are a number of different ways to acquire a company. One method is to purchase it from the current owner or owners. Another option is to buy that is in a company administration process. This process can be complicated, but it can be an advantageous way to get a business at a lower price.

When a company goes into administration, the administrator becomes responsible for its assets and liabilities. The administrator will work to sell the company as a going concern. This means that potential buyers can still purchase the company, even though it is in administration. However, it is important to note that the administrator has the authority to reject any offers that are made.

If you are interested in purchasing a company that is in administration, it is important to consult with a business lawyer to discuss the legalities and risks involved. However, if done properly, buying a company in administration can be an excellent way to get a business at a discounted price.

Where do you find distressed companies

Many people think that distressed companies can only be found in certain industries or sectors. However, the truth is that any company can become distressed under the right circumstances.

For example, a company may become distressed due to financial problems, operational issues, or legal troubles. In addition, a company may become distressed due to changes in the marketplace or the economy.

As a result, it is important to keep an eye on all types of businesses in order to find those that may be in distress. One way to do this is to track the London Gazette to see which companies are entering insolvency.

This can be a warning sign that something is wrong and that the company may be headed for trouble. Another way to buy distressed businesses is to track news stories.

If a company is facing financial difficulties, for example, it is likely to be reported in the business press. By tracking both The Gazette prices and news stories, you can get an early warning about businesses that may be in distress.

Distressed businesses are also offered on valuers websites, these maybe advertised before the company enters insolvency as to raise interest in the business sale.

How can I buy a company in administration?

Should the company already be in administration, you will have to deal with the administrator to purchase the company. Administrators are insolvency practitioners it is their duty to return the best value to creditors so they maybe looking for a fast sale, but be warned a company in administration is sold without warranties or recourse.

1. Decide what type of business you want to buy. Do your research, and use sector expertise you may already have to ensure that you’ve got what it takes to turn a business around. Managing a failing company is hard work, and needs a lot of dedication, so it pays to choose the right business before you put the effort in.  
2. When trying to find a business to buy, research specialist websites, and ask insolvency firms for businesses that are for sale.
3. Find the root cause of your chosen company’s problems, so you know exactly where cash injections are needed, or what areas need restructuring. What will you be taking on? Customers, suppliers, company name, employees? You may need to research the transfer of employment contracts.
4. Organise accounts and an assets/means report, which should show insolvency practitioners how you will fund the business. Seek legal advice and help from advisors or solicitors.
5. A failing business, or one in administration, will obviously need a significant cash injection to turn it around. There will have been areas that have been neglected in order to try and deal with the recent cashflow crunch.  Falling product quality, stemming from the cashflow problems in the run up to insolvency, as well as regulatory issues, can also present problems for acquirers.
6. A full and comprehensive due diligence process is of paramount importance when looking at distressed assets. A professional with experience in due diligence should be taken on to examine facilities, supply chains, reputation, existing contracts, and everything else that could have contributed to the distressed state, to find out how this would affect the existing business of a purchaser.
7. Success in any business is often down to the staff, so make sure that existing staff are on board with your new plans, and are not completely demoralised. They will be the most important people to ensure that the business succeeds.

Raising finance to buy the business

Raising finance to buy a business in administration is not an easy task, but some lenders will look at the deal. You can make an offer to the administrator to make a deposit on the business and offer to pay it over a period of time.

There are different sources of finance that can be used such as apps a personal loan, using past investments and savings. The most important thing is to create a realistic budget and business plan, which will help you to secure the necessary funding.

If there are assets within the sale you maybe able to raise finance against the assets and offer this money to the administrator as payment for the deposit.

There are a number of things to consider when raising finance, such as the type of business you want to buy, the amount of money you need and the terms of the loan.

You should also consider your personal financial situation and whether you can afford the repayments. Once you have raised the finance, you will need to sign a contract with the seller, which will outline the terms of the sale.

After that, it’s just a case of completing the purchase and assuming ownership of the business.Raising finance to buy a business can be a daunting task, but with careful planning it is achievable.

By doing your research and speaking to professionals, you can make the process as smooth and stress-free as possible.

Read more: Invoice finance to buy a business out of pre pack administration

Be aware of when purchasing an insolvent business?

If you are purchasing an insolvent business it’s worth noting that there may be little time available for the buyer to carry out ‘due diligence’ or the Administrators may not allow it. Any information provided by the Administrators cannot be relied on as there will be no right of recourse if it is incorrect.

Trade name Issues

S216 insolvency Act 1986 precludes the reuse of trade names unless the use is permitted by the court or office holder, and the acquirer was not involved with the failed company previously. Be careful of this – if you take on the directors/managers they could face criminal charges if this is not addressed properly.

TUPE

By acquiring a business you may have to honour the employment contracts of ALL of the employees. This can be another legal minefield so get advice on it, early.

Financial Assistance Rules

(s151 153 Companies Act 1985) Make sure the deal complies with the financial assistance rules. Don’t understand what that is?! Suggest you get legal advice now.

Landlords

Landlords should be included in your first discussions in ordered to ensure that they are willing to offer a new lease. You will need to establish if you will have to put down a rent deposit. As well as ensuring the a new lease is drawn up in the new company name.

Read more: What does buying a business out of administration mean?

Conclusion

Buying a business that is in administration or liquidation can be a risky proposition, but it can also offer great opportunities for savvy investors. When a company enters administration or liquidation, it is often because it has significant financial difficulties and is unable to pay its debts.

As a result, it may be sold off at a fraction of its true value in order to pay creditors. If you are considering purchasing a business in administration or liquidation, it is essential to do your due diligence and thoroughly investigate the company’s financial situation, assets, and liabilities. It is also important to consider the potential costs of restructuring the business and bringing it back to profitability.

While there are risks involved in purchasing a distressed business, it can be a great way to acquire assets and customers at a discounted price, and turn a profit with the right strategy and expertise.