How To Sell An Insolvent Business

by ExitAdvisor · 7th July 2017

How do you sell a business that is insolvent or on the verge of insolvency? Company Debt, a UK insolvency consultancy explains what can be done to extract value once a company has run out of cash.

An insolvent business is one that is unable to pay, on time, money owed and/or meet its financial commitments. A business can be either cash-flow insolvent or balance-sheet insolvent. When a business is technically insolvency, directors run the risk of a criminal prosecution for continuing to trade.

But when a business is insolvent or close to insolvent is there anything directors can do to salvage the situation? The article argues that it is indeed possible and that management should start by getting a value for the business both as a going concern and on a liquidation basis. But they need to act quickly.

Directors have several responsibilities they need to be aware of in these situations. Selling assets off at a discount to fund payment of some bills could be viewed as preferring some creditors over others.

The latest figures released by the Insolvency Service for the first quarter of the year show that corporate insolvencies rose 4.5% compared with the final quarter of 2016, and were 5.3% higher than the same quarter last year. The official figures also indicate that Q1 2017 was the third consecutive quarter that the number of business insolvencies has increased.

Breaking down the data, an estimated 3,967 companies entered insolvency in the first quarter of the year, 2,693 of which were creditors’ voluntary liquidations (making up 68% of all insolvencies), 836 were compulsory liquidations (21%) and 438 were other types of insolvencies (11%).

Although corporate insolvencies are at near record lows, the uncertainty caused by the Brexit vote, high levels of inflation and the sharp fall in the value of the pound are making it increasingly difficult for the UK economy, which is taking its toll on businesses. Tough trading environments are pushing more businesses into insolvency.

The article also discusses Adminstration Sales, Pre-Pack Administrations and the Purchase Sale Agreement.

Read more here: How to sell an insolvent business