Everyone loves a bargain – accordingly, there is a lot
of interest when liquidators and other insolvency practitioners put
a business up for sale. Purchasers jostle like shoppers in
the Myer stocktake sale, trying to position themselves as the
perfect purchaser. At the same time they try to convey their
concern about the value of the business or assets –
everyone expects a discount for a distressed business.
Purchasers are often disappointed. The typical process run
by an insolvency practitioner is very transparent and methodical,
however, there are a few techniques and strategies that can be
The insolvency practitioner has a duty to get the best price and
terms, and importantly, may be called upon to prove they have done
so. Therefore prospective purchasers should expect a
transparent process that will probably involve advertising, and
dealings with anyone that expresses interest. This can be
frustrating for purchasers that see themselves as the obvious
purchaser, and the process itself can sometimes lead to a lower
price, or extra transaction costs. However the insolvency
practitioner can be personally liable for any failure to sell on
proper terms – and receivers and voluntary administrators
are personally liable for trading expenses - so they will usually
follow the process assiduously.
The insolvency practitioner will rarely be concerned about the
interests of third parties, so any benefits offered by a purchaser
to franchisees, landlords, suppliers or customers are likely to be
less relevant than in a normal transaction, as the insolvency
practitioner can usually walk away from these obligations. On
the other hand, an agreement to take over employees could be
valuable as it means more net funds to the creditors. It must
be noted that this issue is not necessarily straight forward, as
employee entitlements to directors may be reduced by the
A liquidator will usually highly value unconditional offers and
speed to completion, as the cost and risk of running the business
during the offer and sale process is often substantial.
Accordingly, it is often worth conducting due diligence
early, rather than waiting until you become the approved purchaser.
It is also critical to have your completion funding in order
- often there will not be a lot of time between signing and
completion, and an offer that is subject to finance will rarely be
If you are serious about acquiring the business, it is worth
persevering through the initial stages. Insolvency
practitioners are duty bound to deal with the highest bids, but
some prospective purchasers know this and deliberately bid high on
an indicative or non-binding basis to attempt to get in first and
beat other competitors. A subsequent tactic can then be to
delay the process, seek unreasonable warranties, and/or when
pressed, ultimately come in with a much lower binding offer or an
offer subject to numerous conditions. We recommend conducting
preliminary due diligence investigations early to identify deal
breakers and establish value, and making your best realistic offer
rather than trying to negotiate on price too early. It is
important to have completed due diligence so you can justify your
offer price, and explain (even if the offer is not conditional) the
basis of your valuation of the target. It will usually be
possible to reduce your offer if the assets do not stack up, but a
low offer may see you excluded from the process.
Insolvency practitioners do not have time to muck around, and
after their initial open process dealing with everyone they will
typically focus on one or two purchasers. Usually they will
want a fall back plan, so hang in there even if you are not the
highest bidder. If the business has value we suggest it is usually
worthwhile staying in the game through any indicative offer process
even if you are told that your offer is significantly under the
mark, as it is surprising how many purchasers drop away.
Finally, be prepared to complete quickly. If you are a
serious purchaser, we recommend conducting due diligence
investigations immediately. This will not only help you to
decide whether to proceed with the purchase but it will also show
the liquidator that you are serious, as well as ensuring that you
are able to complete quickly if necessary.
Buying an insolvent business raises unique commercial and legal
issues that prospective purchasers need to be mindful of. Of
these issues, ability to complete quickly is of the utmost
importance to insolvency practitioners keen to minimise their
exposure to the cost and risk of running an insolvent business.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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