Selling a business with debts

[dafcjim]

Hi there
I had a question with regards to selling a business.
If i wanted to sell a business with debts for a less amount is that possible?
For example I have a bounce back loan, hmrc repayment plan ongoing.
If i took that full amount off the listing price is this OK?.
They would have to take on the limited company I presume?...or is this debt director based?
Thanks
Jay

 

[fisicx]

It’s more likely the buyer will want you to cough up and pay the bills before they buy.

But nothing wrong with offering the business for a very low price and see if anyone is interested. The question they will ask is: if the business is profitable why are there debts? If the business can’t cover the cost of the debt then it’s not an attractive proposition.

 

[pentel]

OP, tell us more about the business and numbers involved please.

 

[Mark T Jones]

I think i can introduce you to a buyer who won't ask questions...

 

[AmazonGeek]

The problem with buying a limited company is that the new owner inherits any problems. So if you sold a product 12 months ago that kills someone and they sue after the business has changed hands, the new owner becomes responsible.

If you are a sole trader, that is a lot more straightforward but selling limited companies is expensive because their solicitors will advice lots and lots of due diligence to check there are no skeletons in the closet that can come back and bite them.

Having debts isn't a problem. When I sold my last one I had about £10k left to repay from the bounce back loan. On completion, that amount was deducted from the proceeds. It's a bit like having a mortgage on a house. If you sell the house for £250,000 and you have a £100,000 mortgage then you will receive £150,000 on completion.

Having debts doesn't mean the business is a dud by the way. Many amazing businesses have debts and use them to grow. If you can borrow £100k and turn it into £200k in 12 months for example then borrow and scale.

As long as the business is worth more than its debts (and the bigger the difference, the more you will get obviously) then you will get something out of it.

 

[Paul Kelly ICHYB]

The only reason someone would want to buy the business if there are assets of value and/or it can been seen that the issues can be traded through in a relatively short period of time.

Putting the BBL to one side, a HMRC payment plan would indicate poor administration and/or poor business opportunity.

 

[Elliot Green]

Hi there
I had a question with regards to selling a business.
If i wanted to sell a business with debts for a less amount is that possible?
For example I have a bounce back loan, hmrc repayment plan ongoing.
If i took that full amount off the listing price is this OK?.
They would have to take on the limited company I presume?...or is this debt director based?
Thanks
Jay

If the business has no assets is it really a sale? Or is it a case of you pay for the transfer of the shares?

 

[Elliot Green]

I think i can introduce you to a buyer who won't ask questions...

Other than:

"how much will you pay me for preparation and execution of the share transfer form?"

??

 

[pentel]

If i took that full amount off the listing price is this OK?.

The listing prices may have no resemblance to the value of the business to a buyer. Where has the listing price come from?

 

[Lisa Thomas]

You should really speak to an insolvency practitioner about the options for an insolvent company. Yes it is possible to sell the business, if it's viable but this needs to be handled very carefully.

Happy to have a chat.

 

[AmazonGeek]

You should really speak to an insolvency practitioner about the options for an insolvent company. Yes it is possible to sell the business, if it's viable but this needs to be handled very carefully.

Happy to have a chat.

Just because it has debts doesn't mean it is insolvent. But if it is, that is a whole different kettle of fish re value.

 

[Lisa Thomas]

Just because it has debts doesn't mean it is insolvent. But if it is, that is a whole different kettle of fish re value.

Thanks for your insolvency advice.

Not being able to pay debts as and when they fall due is one of the definitions of insolvency under S123 of the Insolvency Act 1986.. Here, OP says the Company is in a TTP with HMRC.

I didn't comment on value (although I did say 'if viable'), but am well aware of the difference between going concern and break up value of assets.

 

[japancool]

The OP doesn't have a great track record as far as answering their own threads is concerned.

 

[AmazonGeek]

Thanks for your insolvency advice.

Not being able to pay debts as and when they fall due is one of the definitions of insolvency under S123 of the Insolvency Act 1986.. Here, OP says the Company is in a TTP with HMRC.

The comment wasn't for your benefit. You told the OP he should speak to an insolvency practitioner when there was no mention of the business being insolvent. All he said was that the business had debts. I was clearing up that just because the business has debts, it doesn't mean it is insolvent.

 

[japancool]

Chelsea was once sold for a quid. It's not as if the owners needed the coin for a supermarket trolley - it had huge debts at the time.

I suggest the OP gets some proper financial advice. I have a feeling he might not get as much as he thinks the business is worth.

 

[Lisa Thomas]

The comment wasn't for your benefit. You told the OP he should speak to an insolvency practitioner when there was no mention of the business being insolvent. All he said was that the business had debts. I was clearing up that just because the business has debts, it doesn't mean it is insolvent.

You were replying to my comment...

As I stated before, the company is in a TTP with HMRC and is therefore technically insolvent.

 

[AmazonGeek]

As I stated before, the company is in a TTP with HMRC and is therefore technically insolvent.

Not true. The whole point of time-to-pay plans is to keep companies out of insolvency. As long as the company is able to pay its debts on time then it is solvent. For example, it might have gone through a sticky period, put the TTP agreement in place and then traded out of it (but decided to take advantage of the extended payments).

 

[Lisa Thomas]

Not being able to pay your debts as and when they fall due is a definition of insolvency under S123(1)(e) of the Insolvency Act 1986.

IMO if a company has entered a TTP, it's unable to pay it's debts as and when they fall due.

I suspect the point of TTP's is for HMRC to get their money back, not to help a company avoid entering a formal insolvency procedure. That's the directors responsibility...

Guess we will have to agree to disagree.

 

[DontAsk]

I see little difference to getting a loan to pay HMRC, or any other creditor, so long as the business is generating profit so that the repayments can be met.

 

[Mark T Jones]

I see little difference to getting a loan to pay HMRC, or any other creditor, so long as the business is generating profit so that the repayments can be met.

Generating cash, moreso than profit.

Taxi loans are a bit of a red flag - possibly just a blip or seasonal trends, but often a bad trend of debt to cover debt

 

[DontAsk]

Taxi loans are a bit of a red flag - possibly just a blip or seasonal trends, but often a bad trend of debt to cover debt

Indeed but the company may be trading out of difficulty. One would assume lenders would do some due diligence and not end wily-nilly.

 

[Mark T Jones]

Indeed but the company may be trading out of difficulty. One would assume lenders would do some due diligence and not end wily-nilly.

You'd hope, wouldn't you

One of our lenders does secured loans apparently most of their business.at the moment is consolidating multiple vat/payroll/ short term loans

 

[Elliot Green]

Not true. The whole point of time-to-pay plans is to keep companies out of insolvency. As long as the company is able to pay its debts on time then it is solvent. For example, it might have gone through a sticky period, put the TTP agreement in place and then traded out of it (but decided to take advantage of the extended payments).

"As long as the company is able to pay its debts on time then it is solvent." - that is not the test of solvency.

There's a two version, either or test for solvency and TTP may only cure cash flow.

Even in a TTP in which cash flow insolvency is alleviated a director still has to consider their Sequana Creditor Duty if they are balance sheet insolvent.

 

[The Resolver]

There are 3 options:-

1. You sell your shares in the limited company. The problem of ensuring the debt is paid is then that of the buyer of your shares (assuming you give full disclosure of the debts). The buyer would need to believe that there is a real opportunity to turn round the trading for the better.

2. The limited company sells 'the business' to a second company or individual meaning the transfer in return for payment of any physical and/or digital assets (e.g. mail list subject to privacy compliance) plus any IPR, e.g. software that is not being best exploited and the rights for the buyer to continue the trading. The debt remains with the limited company. The OP will have to be sure he can satisfy enquiry to the effect that the price received by the company is fair value and not undersold. .

3. If the company is not trading at any form of profit and so no prospect of paying off all the debt, then a voluntary liquidation with a buy back of assets from the liquidator, You need advice from an insolvency expert.