If your business were to fail can you buy it back?

Probably yes. As long as the business and assets have been openly marketed and your offer is the best received by the acting insolvency practitioner - and here is the point in many liquidations the only offer made for the business and assets is from the former shareholder/directors so as long as you offer more than breakup value the chances are that the business and assets will be yours (again).

This is hardly surprising as the previous owner/managers will know more about the assets than anyone else.

Also whilst there are practical difficulties and it should only be done under advice there needn't be any cessation in trading as the company can trade up to the date of the liquidation and the chances are the liquidator will be only too keen to sell the business and assets as soon as he/she is appointed. So you have every chance of getting the business and assets back relatively intact without the liabilities and subject to following the correct procedures you should be able to use the same or a similar name.

What's more following a favourable run of legal cases even the employee liabilities no longer automatically transfer to the purchaser if the business is sold by a liquidator. On the subject of employee (including directors) liabilities these get paid by the government up to certain statutory limits, for example an employee with 10 years' service can probably expect to receive £10,000+ in addition to possibly getting a job from the new company.

However, each situation is fact specific and there are many potential pitfalls including:

  • Trade creditors may try to claim retention of title to stock. Even if they do a lot of claims fail for one reason or another and there are usually deals to be done. Most creditors would rather have your future business than their stock back.
  • Ransom creditors may not deal with the new business unless they get paid their old debt in full. It would be illegal for the old company to pay them but there is nothing stopping the new company spending its money as it likes.
  • Most creditors are initially reluctant to extend credit to a new company where they have suffered an associated bad debt. However, memories fade and most companies start to get credit again after a few months of operating on a pro forma basis.
  • Under estimating the working capital required to get through the first couple of months.
  • If the old company had a history of HMRC non compliance then HMRC could request security for the new company's HMRC debt. This used to be very rare but we are seeing this more and more as you will read in our next Top Tip on this subject.
  • Very few business survive an insolvency totally unscathed even though much greater value is likely to be salvaged if the business is not run into the ground first.
  • Personal guarantees can come home to bite.

So it sounded too good to be true and now the potential pitfalls make it sound like a nightmare. But all these risks are usually manageable in some way with careful planning and probably amount to less than the risk to directors of trading on when their company is insolvent and only a miracle can save it.

Whether to carry on or call it a day and try to buy your business back from an insolvency practitioner needs careful consideration and as licensed insolvency practitioners ourselves if you ever find yourself in that situation we would be delighted to help you weigh up those choices.

If you need assistance with business rescue or insolvency, call us on 0800 331 7417.

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