Buying an insolvent business from an administrator
There have been several predictions that the number of business failures will increase in early 2010. History indicates that insolvencies rise as the economy comes out of a recession, and that Q1 is frequently the time when owners run out of cash.
There are therefore likely to be more financially distressed businesses being sold by administrators – offering a great opportunity for those with cash. Not all distressed businesses are basket cases – some can be well managed and profitable. One bad debt, legal dispute, missed payment or change in terms can push a company into cash flow difficulties which could lead to formal insolvency procedures.
Buying from an administrator must be undertaken very quickly. The assets are usually sold at substantial discounts to normal valuations, which reflects the risks and lack of warranties/indemnities.
Mercer & Hole have several experienced insolvency practitioners. This provides us with a big advantage when it comes to negotiating with an administrator.
We receive a number of distressed acquisition opportunities every week, if anyone would like to hear of such businesses, please email me to register an interest.
I will cover the key issues to be aware of in buying from an administrator in another post.
Julian Dobbin is a partner at Mercer & Hole. The views given in this blog are personal to the author.
Date: 17th December, 2009
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