When purchasing the business of an insolvent company, there will normally be an agreement on who collects the sellerÂs book debts. The insolvency practitioner may ascertain that the buyer should collect them as it will be engaging in business practices with the sellerÂs former customers after completion takes place. Furthermore, the buyer is likely to embrace this responsibility as it will want to protect its new customers from being unduly harassed by the insolvency practitioner. The last-mentioned entity is only concerned with recovering payments and unlike the buyer, does not have to safeguard any existing relationships.
The buyer can (although it is not obligated to) charge a commission for collecting the sellerÂs book debts. However if this is the case, the contract of sale will have to expressly articulate such an agreement. Conversely if the buyer does not collect book debts for the seller, it would in all probability want the insolvency practitioner to provide adequate notice before instituting legal proceedings against a customer.
Moreover, the buyer could also request that it have the option to purchase the sellerÂs book debts in order to circumvent litigation. It is imperative to appreciate that the sellerÂs book debts are ordinarily bought at less than the face value. The recoverability of a book debt will be determined by assessing various issues, including the financial position of the particular customer.