Insights

Andrew Robins

Published 18 July 2023
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Buying a Business from an Administrator

Part 2

Caution is always needed when buying from an administrator and in our last post, we looked at an administrator’s responsibilities, warranties and indemnities, due diligence, types of sales and valuations.  In this second post in this series, we take a closer look at some of the other important issues you need to consider if you are thinking of buying a business or assets from an administrator, such as dealing with employees, key contracts, and property.

Employees

The business’s employees will normally be an important part of the purchase if you want to continue trading.

The Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE) will usually apply, thereby transferring to you, the new employer, the existing contracts of employment and all employee rights. Therefore you will need to assess the responsibilities and liabilities you are acquiring as early as possible. This in turn may impact your negotiations. What are the wage costs, are there any arrears and are there any claims pending or likely to be made in the employment tribunal?

It will also be necessary to quickly identify which of the key personnel are leaving or staying. Sensitivity will be required here as they are likely to have been through a difficult and anxious time.

Customers

Similarly, it is important to identify the business’s clients and customers as soon as possible. If there are confidentiality and non-disclosure agreements, you will need to get the administrator’s permission before you speak to anyone. You will also need to check for any termination provisions in customer contracts. It may be possible to transfer some contracts from the seller to you, but with others, you may have to enter into new contractual arrangements.

You will undoubtedly need to speak to key customers in advance to find out their position and to establish whether they are owed any money. With both employees and customers, early damage limitation when it comes to the business’s reputation is going to be important.

Property

The business may, of course, own or lease property and in turn, that property may or may not form part of the purchase. The first issues therefore that need to be clarified is whether any property is freehold, leasehold or occupied under licence and whether it will be possible (if required) for you the buyer to occupy the property immediately on completion of the purchase.

If you are intending to buy freehold property owned by the business, then you do so at your own risk and you will normally get very limited pre-contract information. If the property is leasehold, it will either be necessary to get an assignment of the lease or to enter into a new lease. Again, early communication with the landlord is important as the insolvency of the business may allow the landlord to forfeit the lease. In the case of an assignment, you will need to identify any potential liabilities (such as dilapidations).

Finally, if the business was occupying the premises under licence, it will be necessary to agree to a new licence with the landlord. In some cases, it may be necessary in the short term to get a licence to occupy immediately after the purchase whilst the bigger picture of negotiating a new lease is resolved. Of course, if you don’t want or need the property as part of the purchase, then it need not form part of the purchase agreement.

Suppliers

The business suppliers should also be contacted early. You will need to know the terms of business and whether the supplier wants to continue to work with the business. It may be to be possible to transfer the contract to you the purchaser or you may wish to seek alternative terms or suppliers.  

In some cases, a supplier may claim that they continue to own the assets / stock until the price has been paid (subject to the terms of the relevant contract). If this is a possibility, it will be necessary to try and agree payment terms with the supplier before the purchase of the business or there is a risk the stock will have to be returned.

In our next post in this series, we’ll take a look at assets and intellectual property. However, if you would like any advice about any of the issues raised herein, please get in touch.

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