Buying a distressed business? Seven things to consider - Kuits Solicitors Manchester
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Buying a distressed business? Seven things to consider

Buying a distressed business? Seven things to consider

29th April 2020 - Published by Kuits corporate team

With the pressure COVID-19 is putting on businesses, it is likely that there will be an increase in the number of distressed businesses available for purchase.

Selling a business in financial difficulty can preserve the business as a going concern, protect employees, repay creditors and, if the business is solvent, allow the shareholders to receive a return.

For the buyer of a distressed business, it can be an opportunity to secure a bargain whilst bolstering growth and other strategic objectives. The sale and purchase of distressed businesses has some distinctive features that the parties should ensure they are aware of before embarking on the process:

1. Time is of the essence

As the key focuses are to reduce business disruption and protect value in a challenging situation, sales of distressed businesses happen under much shorter timescales than traditional sales and purchases. Serious buyers should get cash and funding lines together as soon as possible to be able to move quickly. To speed the process along, engage with as many stakeholders of the seller as early as possible.

2. Business sales are usually favoured

In contrast to acquiring the shares in a company, allowing the purchaser to acquire the assets can see many of the liabilities left behind.

3. Keep in mind the possibility of insolvency

If the business becomes insolvent during the sale process, there will be further options to consider, e.g. a traditional insolvency procedure such as liquidation or a “pre-pack”, whereby the company is put into administration and the business and/or assets are immediately sold by the administrator under a sale that was arranged before the administrator was appointed.

The directors of the target business must also be alert to their enhanced duties owed to creditors whilst the business is in financial dire straits, in order to avoid any personal liability or criticism (such as for wrongfully continuing to trade when there was no prospect of avoiding insolvency) should the business become insolvent.

4. Buyer beware

Often distressed sales are transacted on the basis that there is little or no warranty protection for the buyer, which is mitigated, in part, by the buyer usually choosing to acquire the assets rather than the shares and due diligence on key areas, especially title to the assets being acquired. This is especially the case where the sale is from an insolvency practitioner.


In any business sale, the employees are (unless an exception applies) automatically transferred to the buyer on the same terms. Any insolvency practitioner will seek an indemnity from the buyer in respect of liabilities relating to the employees they would face as a seller.

6. Suppliers and customers

Suppliers to the business may have the benefit of retention of title provisions in supplies that may need to be dealt with. The value of many businesses is in preserving key customers: are they on board?

7. Property liabilities

Rent arrears may need to be dealt with in order to allow ongoing occupation of the business premises following completion.

If you are considering the sale or purchase of a distressed business it’s crucial that you have legal advisors that can steer you through the process, particularly if a business becomes insolvent during the process. Our corporate team works closely with our insolvency team to provide a seamless service for clients.

To speak to an expert about any of the points raised in this article, contact partner Kirsti Pinnell on 0161 838 7847 or email

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