An insolvency practitioner’s duty of care

The insolvency practitioner will refrain from disclosing information that could impair the value of the business. Consequently, at the inceptive stage of the transaction, information pertaining to customers may be withheld from a prospective buyer the practitioner needs to be satisfied that an inquiry is made in good faith when due diligence is being carried out.

There is an obligation on the practitioner to ensure that they have secured the best price that one can reasonably expect to obtain when the business changes hands. It is therefore not unusual for an interested party to be left in limbo for a certain amount of time after making an offer to buy the business. A prospective purchaser (particularly a competitor) however, is likely to know if their offer will be accepted by the practitioner.

If the buyer’s offer is deemed to be sincere and is made in good faith, the practitioner may allow them to inspect the business assets. It is imperative to appreciate however that the buyer would not normally be permitted to examine the books of the insolvent company, at least not until the practitioner has unconditionally accepted the former’s offer as it may comprise market sensitive information.

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