Buying the assets of an Insolvent Business

Gannons was approached by a long-standing client who was seeking to take over the assets of a chain of restaurants catering Italian food, that had fallen into insolvency.

By the time we were instructed, administrators had taken control of the business and were looking to either sell the assets or wind up the Company within the week.

Therefore, we had to negotiate with the administrators, prepare the necessary documents, and finalise the sale in a tight timeline to avoid the Company being wound up.

Key Issues

The asset purchase route proposed certain problems, including the preference of a Company sale by the administrators. We negotiated on behalf of our client to secure an agreement by which they would not take on any of the accrued debt of the business, which would be paid off by the sale of the assets.

In order to protect our client from potential issues with either being locked into long leases unprofitably or being charged extortionate rents, we implemented a plan in which our clients would be licensed the leases on the property where the restaurants were located. This would enable them to evaluate the profitability of each of the locations over a period and then make a decision to negotiate from a position of strength.

Additionally, the deal was structured such that a percentage of the price would be based on the ability to secure a license to use each of the restaurants. This allowed our client to cost into the deal the potential risks due to the speed of the transaction.

There were further issues caused due to the lack of contact with the initial owner, all negotiations were carried out with the administrators. As there was important intellectual property for the brand, we had to secure the formal transfer of these intellectual property rights quickly to best protect our client.

Asset Purchase

We recommend purchasing the assets of the business rather than buying the Company itself, to avoid taking on the excessive debts that had been built up by the previous management. We discussed this with the administrators, emphasising that this was a good deal for the creditors – as they would receive funds on the assets being sold – but also for the employees who were able to remain working in the business.

We advised our clients to create a New Company (Newco) into which they could purchase the various assets of the Company:

• Stock
• Social Media and website
• Property and leases
• Goodwill

It also enabled them to transfer the employees’ contracts, retain their jobs and experience in the business, and help to create a transition for the business.

The biggest challenge – Intellectual property

In today’s competitive business landscape, the value of a company is often intricately tied to its intellectual property (IP) and brand recognition. Intellectual property encompasses patents, trademarks, copyrights, designs, and trade secrets, which are intangible assets that can be instrumental in distinguishing a company’s products or services from competitors.

Transferring (assigning)  intellectual property and a brand is a nuanced process that requires careful due diligence and time.

As was the case with our client, buying assets which are Intellectual property Rights is often the hardest and potentially risky area when being forced to complete a deal in a hurry in an insolvency situation.

Final Steps

The acquisition was documented through a combined Asset Purchase Agreement, that took into consideration the various components of the transaction. By structuring the transaction in this manner, and delivering the documents within the administrators timeline, we were able to assist with the fire acquisition of the business assets and enable the business to continue.

If you are looking to purchase a business, please do reach out to us to discuss the necessary steps needed in order to not only complete the transaction, but to protect yourself against the potential commercial risks you are taking.