Purchasing the business and assets of an insolvent company

A direct sale is normally the preferred method for selling the business and assets of an insolvent company. In addition to being less complicated than a hive down, a commercial transaction involving just the insolvent company and the purchaser can generally be completed in a more expeditious and cost-effective manner. Nevertheless, a sale by way of hive down may materialise in certain circumstances. It is an alternative approach that requires the business and assets of the parent company to be transferred to a newly-formed subsidiary. The hive down subsidiary is then subsequently sold to the purchaser.


In the event that a natural or legal entity makes a formal offer to purchase the business and assets of the insolvent company, the insolvency practitioner can furnish a pre-prepared standard form contract for the interested party. Any comments made on that draft would be assessed and together with the price offered, will determine the outcome of the tender. The purchaser may need to provide onerous indemnities. However, the insolvency practitioner’s demands pertaining to inconvenient assurances could be mitigated by negotiation.


The business sale agreement must contain a list of all the assets and/or liabilities that the purchaser intends to procure. It is imperative to meticulously check the agreement to make sure it identifies and transfers these assets and/or liabilities as they comprise the part of the business that the purchaser seeks to acquire.


It is also crucial for the purchaser to ascertain the legitimacy of the insolvency practitioner. If the former’s solicitors have failed to inspect the appointment documents, the latter’s decisions regarding the sale could be challenged by the creditors, directors and/or shareholders of the insolvent company. The solicitors of the insolvency practitioner should consequently be asked to impart the necessary information and submit the relevant documentation to the other side. The amount of due diligence (investigative research) that is carried out will vary from case to case. For instance, when a debenture holder appoints an insolvency practitioner the level of due diligence required would be axiomatically higher than other scenarios as it would entail investigating the lawfulness of that security.


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