Purchasing the business and assets of an insolvent company
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Written on 23
February 2015
A direct sale is normally the preferred method for selling the
business and assets of an insolvent company. In addition to being less
complicated than a hive down, a commercial transaction involving just
the insolvent company and the purchaser can generally be completed in a
more expeditious and cost-effective manner. Nevertheless, a sale by way
of hive down may materialise in certain circumstances. It is an
alternative approach that requires the business and assets of the
parent company to be transferred to a newly-formed subsidiary. The hive
down subsidiary is then subsequently sold to the purchaser.
In the event that a natural or legal entity makes a formal
offer to purchase the business and assets of the insolvent company, the
insolvency practitioner can furnish a pre-prepared standard form
contract for the interested party. Any comments made on that draft
would be assessed and together with the price offered, will determine
the outcome of the tender. The purchaser may need to provide onerous
indemnities. However, the insolvency practitioner’s demands pertaining
to inconvenient assurances could be mitigated by negotiation.
The business sale agreement must contain a list of all the
assets and/or liabilities that the purchaser intends to procure. It is
imperative to meticulously check the agreement to make sure it
identifies and transfers these assets and/or liabilities as they
comprise the part of the business that the purchaser seeks to acquire.
It is also crucial for the purchaser to ascertain the
legitimacy of the insolvency practitioner. If the former’s solicitors
have failed to inspect the appointment documents, the latter’s
decisions regarding the sale could be challenged by the creditors,
directors and/or shareholders of the insolvent company. The solicitors
of the insolvency practitioner should consequently be asked to impart
the necessary information and submit the relevant documentation to the
other side. The amount of due diligence (investigative research) that
is carried out will vary from case to case. For instance, when a
debenture holder appoints an insolvency practitioner the level of due
diligence required would be axiomatically higher than other scenarios
as it would entail investigating the lawfulness of that security.
Written by Mekael Rahman
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Lawdit
Solicitors offer services and advice for litigation,
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are experts in commercial law with a heavy emphasis on Intellectual
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Article Published/Sorted/Amended on Scopulus 2015-03-27 09:00:47 in Legal Articles
