Top ten tips for those planning an acquisition of a distressed business

Use advisers who have previous experience of doing deals in these circumstances. Consider bringing an insolvency practitioner onto your team - their experience from the other side of the fence means they will understand the nature of the deal, and help guide you around possible pitfalls.

This team must be prepared to carry out an accelerated and extensive due-diligence exercise. This will help anticipate possible problems and lessen the chances of future problems arising from the deal.

If you are looking at buying assets from a struggling company try and wait until the insolvency practitioner is appointed. If it's not possible, be aware that you could have to show that you have paid a fair price for them when the insolvency practitioner is appointed.

Find out if anyone has registered security over the company's assets. If they have, you will need to obtain releases for any charges to which the sale may be subject. The releases have to be obtained directly from the charge holders, not the insolvency practitioner. Charges have to be registered with Companies House, so you can use the WebCheck function on the website to find out.

Be aware that assets may also be subject a retention of title deeds which means that suppliers still own them until they are paid for. Ask the insolvency practitioner for copies of the suppliers' terms and conditions to check this.

Ensure you have the funding in place - insolvency practitioners will want to move quickly and a cash deal is always more attractive than some form of deferred arrangement.

Be aware that more and more contracts with customers, suppliers and possibly landlords are beginning to include an automatic termination clause in the event of insolvency. Find out from the insolvency practitioner which contracts will be continuing, and how.

Check whether the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) applies, even if you are only buying assets. If the sale amounts to a Transfer of a Going Concern (TOGC), with machinery and stock which is going to continue to be used then it could. TUPE ensures that employees' existing contracts are transferred which will have implications if redundancies are going to be needed. ( see following article on page 11 that gives guidance on the requirements that need to be met in order to achieve the aforementioned TOGC status

You will need a good management team, and one with the skills to integrate the distressed business - although bear in mind this is likely to take twice as long as you had anticipated.

Incorporate the new business to ringfence the assets and ensure that if things don't work out your existing business is not threatened


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