Buying an Insolvent Business - FAQs

A pre-pack sale (sometimes known as a pre-packaged sale) is an arrangement or agreement for the sale of an insolvent company’s assets, in which the terms are negotiated and agreed prior to the company being placed into formal insolvency.

The term is most commonly used in the context of administrations where the terms are agreed with the licensed insolvency practitioner who is the proposed administrator

The Pre-Pack Pool was set up following recommendations made by Theresa Graham in her report on pre-pack administrations. The Pool is made up of experienced independent business professionals who will give their opinion on the acquisition of an insolvent business by connected parties by way of a pre-pack sale.

Whilst not compulsory, it is recommended that an application is made (at present, for a fee of £800), if you are a party connected to an insolvent company (such as a director or shareholder) and are looking to enter into a pre-pack sale.

VWV can advise you about the merits of making an approach to the pre-pack pool and can also help you prepare the necessary application if needed.

Contact Us

Whilst buying the assets from an insolvent company often means you are paying less than you would in a solvent open market sale, the licensed insolvency practitioner is still under an obligation to obtain good and fair consideration for the sale.

Any reduction in price that you may see is countered by the fact that the sale will likely be on 'standard insolvency terms'. This may mean that you are likely to have limited time to undertake any due diligence into the assets you are buying, you may not be given the warranties in relation to the business and assets that you may otherwise expect in a business sale and further parts of the insolvent business may have been damaged or compromised as a result of insolvency, having a negative impact on the goodwill.

Therefore, whilst you can often buy a business for a relative bargain from an administrator, it is important to understand the implications and terms of entering into an Insolvency sale so you can ensure it is the right deal for you.

VWV’s experienced team of dedicated insolvency lawyers are accustomed to acting for both insolvency practitioners and purchasers in insolvency sales and can help you get the advice and assistance you need to complete on a sale.

Contact Us

Sometimes.

The provisions of TUPE 2006 usually mean that any employees of a business are automatically transferred to the purchaser when that business is sold however the position is different in sales of distressed businesses. Whether employees are automatically transferred or not will depend on the type of insolvency process involved.

In order to fully understand your options, obligations and liabilities in relation to employees when acquiring assets from insolvency we suggest that specialist advice is needed.

Our insolvency solicitors at VWV work closely with our Employment team to ensure you are able to consider your position in this regard properly.

Contact Us

When buying assets from an insolvent company it is important to understand whether VAT should be charged on the sale, and if it should, then whether the price agreed is inclusive or exclusive of VAT.

Some insolvency sales are VAT exempt due to them being a transfer of a going concern, or TOGC with specific conditions being satisfied. Our solicitors at VWV are happy to advise you further on this depending on the circumstances of the deal and can work in conjunction with your tax accountants as needed.

Contact Us