Buying liquidated assets an attractive option

Buying the assets of a company in liquidation is potentially an attractive and low cost means of expansion for growing businesses.

Only recently CPS Group, a lighting and audio-visual service provider, bought the brand and a large portion of assets of its local competitor Stagecraft Technical Services (STS) out of liquidation (both are located in South West England). The liquidators from Begbies Traynor had failed in their attempt to find a buyer for the whole business, before stepping in to liquidate it.

Richard Colegate, CPS’ director, commented on the deal, “We look forward to working with Stagecraft customers in 2012. Combining CPS’ excellence in modern lighting, audio and video with Stagecraft’s expertise in stage production & outdoor structures provides exciting new possibilities.”

“Bringing on-board Stagecraft’s expertise in stage construction and a significant stock of staging & outdoor structures means that we can provide a more comprehensive service to our existing clients too,” he added.

In another example Aberdeen-based technology firm XL Group recently bought the assets of lift maker Ross and Bonnyman, after its Forfar-based factory was closed down and 30 staff made redundant on the appointment of liquidators from Begbies Traynor.

XL Group managing director Colin Laird commented on the deal: “Plans are already under way to reopen the Forfar factory…and we plan to increase our workforce throughout the group to over 100 over the next year by recruiting additional mechanical, metering and software engineers.”

The assets of a company can prove valuable for both buyers and sellers of failed businesses – whether they are being wound down, or have collapsed into insolvency. The liquidation process can take three forms: a members’ voluntary liquidation is where the directors or shareholders of a company decide to put a solvent company, with enough assets to pay all the debts, into liquidation; a creditors’ voluntary liquidation is where the directors or shareholders decide to put an insolvent company into liquidation, where there are not enough assets to pay all the company’s debts; and an involuntary (compulsory) liquidation, involving a court issue a winding-up order on behalf of a petitioner, such as a creditor.

In a members’ voluntary liquidation, a company can undergo a formal liquidation process, which sees assets sold and the gains paid out to the company’s shareholders, which are then subject to capital gains tax as opposed to being taxed as dividends and subject to higher income tax rates. This comes at a cost however – around £4,000 as a minimum – and would require the services of an insolvency practitioner (IP).

Whether an asset has become available through a voluntary or an involuntary liquidation, a buyer must know what they want as their target: it is possible to speculatively look at businesses that have gone into liquidation, but a clear idea of what is wanted is not only crucial, but can also help unearth opportunities when dealing with an IP. If a buyer knows what sort of assets they are after and is able to give a clear set of criteria – including available funds and desired timescale – to an IP dealing with liquidated businesses, then new opportunities can be identified quickly. Most asset sales of liquidated or insolvent businesses take place within a month of the administrator’s appointment, so being aware, prepared and able to move quickly can prove invaluable.

If a potential buyer has a particular target business in mind, they must first find out what parts of it are for sale and what might be suitable – and financially worthwhile – for their business. A buyer must always be aware of hire-purchase or leasing deals on machinery or equipment, as well as software licences, and any stock that could potentially be an asset but that may be reclaimed by suppliers.

The human implications of buying assets of a company out of liquidation can be quite high, particularly when companies have undergone voluntary liquidations. If a creditors’ voluntary liquidation has taken place, the buyer may have to be financially prepared to make redundancies among staff and for any potential payouts that may be due. There are, however, some loopholes that can be used by a buyer to justify redundancies when they are necessary for the ultimate survival of the part of the business.

The tight timeline around the sales of the assets of liquidated businesses is also indicative of the strong competition that often surrounds such deals. While they can be potentially risky prospects, the assets available can offer the expansion opportunities that firms would otherwise have to spend possibly years developing, so a good deal can create a clamour of keen potential buyers. Some of the first in line may well be existing management members, seeking to combine the assets with their expertise to build a new business, and who are prepared to move quickly.

So the news that the number of company liquidations has risen and is expected to increase in 2012, whilst not savoury news on a macro scale, will be welcome to those on the lookout for opportunities.

Recently published figures from the Insolvency Service for the fourth quarter of 2011 reveal a 14 per cent rise in compulsory company liquidations to 1,389, out of a total of 4,260 liquidations for the quarter, up by 7.2 per cent on the same period in 2011.

It is expected that increasing numbers of businesses will fail as a lack of funding and low sales continue to bite.
To conclude, taking on the assets of a liquidated business can be turned into a lucrative addition to a company but can also prove to be risky without the sufficient research and knowledge. Due diligence is paramount, as is assessing the true value of the stakes on offer, but with enough effort and some good choices, buyers can open up valuable routes of expansion.

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