Purchasing the assets of a business from an administrator or liquidator can be a cost-effective way of acquiring the equipment and other materials necessary to start or expand your own business. However, when buying from an insolvent business there are a number of points to be aware of.
The assets will not come with any assurances or guarantees. This means you need to carry out investigations before the transaction goes ahead to make sure you know exactly what you are buying and the potential risks involved.
Investigating assets before purchase
As the assets will not be sold with the usual warranties or indemnities, they will usually be available at a lower price than normal.
You will buy ‘such right, title and interest as the seller has’ and you might not be given extensive information about the title so you will need to carry out careful due diligence to ascertain the extent of the seller’s ownership.
You are also unlikely to be given any information about liabilities that attach to the assets, such as potential legal claims.
You will generally be required to confirm certain points to the administrator when completing the purchase, including the following:
- Your understanding that no warranties are indemnities are given;
- That you have carried out your own investigations and inspections in respect of the assets;
- That you have taken independent legal advice before proceeding with the purchase.
Taking on insolvent company assets
Taking on a commercial lease will require the landlord’s consent. While this is being agreed upon it may be possible to negotiate a licence to occupy in the meantime. In any event, it is important to ensure that the landlord’s consent will be forthcoming before buying a business that relies on the premises in question.
Equipment, machinery and stock
You will need to check whether equipment, machinery and stock are owned by the business or leased. If they are leased, then you will need to negotiate a lease yourself with the owner as the administrator has no title to sell or authority to transfer a lease.
If stock is included in the purchase, then the administrator will ask you to indemnify them in respect of any liability in case the stock subsequently transpires to be subject to a retention of title.
You will also need to check whether the seller has title to any intellectual property that is included. If it is on licence only, you will need to negotiate a licence, as the administrator will not be able to sell this to you.
If you are purchasing a whole business as a going concern, you will also take on the employees, with their continuous period of employment remaining unbroken. You are not required to keep to the same terms of employment, however any changes will be subject to a trial period. At the end of the trial period, the employee can reject the new contract terms, in which case they will be deemed redundant. You therefore need to be aware that you may be facing redundancy costs and you should take this into account when negotiating price.
At Quinn Legal our company and commercial team can advise you in respect of the purchase of business assets, to include employee liability.