Important things to know when buying a business from an administrator

Important things to know when buying a business from an administrator

August 24, 2023 by Sandra

Can you buy a business from an administrator? And if so, how does the process work?

In these challenging times, an increasing number of businesses are being forced to call in administrators. The statistics speak for themselves: there were a total of 6,342 company insolvencies in England and Wales in Q2 2023, an increase of 9% from Q1 and an increase of 13% from the same quarter in the previous year.

If your business is facing administration, you might be confused about what happens next.

One of the questions we are frequently asked is whether it’s possible to buy a business back from an administrator, and if so, how the process works. With that in mind, read on to discover everything you need to know when buying a business from an administrator…

Things you need to know when buying back your business from an administrator

What is administration?

First things first, what is administration? The best way to explain it is that administration is a temporary state for a company to be in where it is safeguarded from legal action whilst a solution is found.

Depending on the company’s financial position and whether it is salvageable, the solution could be a sale out of administration, allowing the company to continue trading and save jobs. Alternatively, the company could be closed down if it is deemed unlikely to recover from its currently financial challenges.

So, what happens when a company enters administration?

When a company enters administration, the administrator will assume control of the company and any decisions made from then on must be made with the interests of the creditors in mind.

If a future sale is likely, the business will probably continue to trade during administration, with businesses which are sold as a going concern selling for much more than selling the assets of a company which has already closed its doors.

If the company is salvageable, the business will be marketed accordingly, with all offers considered. The best offer the administrator accepts will be the one that raises the most money for the company’s creditors.

The purchaser could be a completely unconnected third party, or it could be a new company (newco) set up by the existing directors and shareholders who want to buy back the business and start again without any debts.

Is it the same as a pre-pack administration?

No - with a pre-pack administration, the sale will have already been negotiated and agreed before the administrator was appointed.

A pre-pack sale is a type of insolvency procedure whereby the directors of an insolvent company sell the business and its assets to a new or related company that is often made up of the same directors.

This way, existing employees can be hired, and the same services can be provided free from the burden of debt. A pre-pack administration enables a company to be restarted without any of its debts and allows it to restart in a new but unchanged form.

However, it’s important to note that for a pre-pack to be an option, the business must be sold at a fair market value, and it must be a viable business.

What will I get when I buy back my business?

The exact terms of any deal are unique to each transaction, but the purchaser

- whether it is a third party or a newco - will acquire the business and its tangible assets, along with the brand, online presence, and any physical store.

This means that not only will the company’s outstanding creditors benefit from as great a distribution as possible, but also that the new venture has an increased chance of survival as it is no longer burdened by debt.

So, I’ll be able to buy back my assets?

Yes, but it’s important to know that once your company enters administration, it’s all about generating the maximum profit for the creditors.

As such, unless you are entering into a pre-pack administration where the sale of the business is agreed before appointing an administrator, the assets will typically be sold at auction to the highest bidder.

This means that there is a possibility that a competitor or third party could purchase one or more of your business assets instead. For more information about the rules surrounding buying back your company assets, don’t miss this blog.

Need further advice about buying a business from an administrator?

If you are thinking about buying back your business or company assets from an administrator, it’s important to seek expert advice to ensure a fair value is attached to each asset and that the process runs smoothly.

If you’re unsure about what this means for you as a company director, or if you are confused about where you stand, help is at hand.

Here at McAlister & Co, we are experts in insolvency and administration, so if you have questions about buying back your business, our team is on hand to help you to navigate the process one step at a time.

If you’d like to find out more about how we can help, contact our team today to find out more.

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