Buying an Insolvent Business... Advice Please

[poohbear99]

I have been looking for premises for a business for sometime and have finally found something which fits my criteria perfectly.

They are demanding a fairly hefty premium for the lease which could be attributed to the size and location of the business.

So far they have provided 08/09 trading figures but they seem to be taking time with the remainder. Although turnover is healthy, the profits are low but the expenses have been hugely inflated to minimise profits and thus tax. I'm not hugely concerned by this as there is huge scope to develop the business.

After doing some research online today I have found a notice relating to the business, registering it as Insolvent as of December last year.

My question is, should I have been made aware of this by the vendor and agent? What do I need to be aware of when dealing with an insolvent business?

When I met with the vendor they explained that they own a number of commercial properties and after many years of running the business they are slowly leasing off premises. I don't understand how a business owner with multiple businesses and revenues would need to go into liquidation?

Apologies if this sounds naive but any thoughts would be greatly appreciated.

 

I'm not entirely clear on your question - your are about to lease premised, but the lessor is insolvent?

Are they in liquidation? A quick credit chech will give you the up to date situation.

With regards to your final question, it simly depends on how efficiently they run their busuinesses - the mopre diverse, the less efficient they are likely to be.

 

[Rhodes100]

It is possible that the agent did not know themselves about the businesses insolvency, owners often try to hide the facts and true situation from both the agent and potential buyer hoping to get away with it.

I would suggest that you buy the assets of the limited company rather than the shares of the limited company, that way any debts remain the companies responsiblity not yours. If the business is unincorporated then the debts are the old owners anyway.

This might tell you also that the owners are more desperate to sell than you thought.

Also I question the goodwill (premium) they are asking if the business is not making a profit.

What you have to do as part of your due diligence is to ensure that you will not be in the same position in the future and that the business has a future.

Is the insolvency due to bad management, lack of capital or something else?

Do you of course simply wait and then buy the business from the liquidator in time?

 

[poohbear99]

Thank you for your response. I have posted this in Accounts and Finance too.

I think the business has been poorly managed and neglected by the current owners.

I agree they will need to justify the premium given the low profits.

Please can you explain the benefit of giving it more time?

 

[Rhodes100]

How much other interest have the owners had in the business?

And what will their opinion be when they find out the truth as well?

Buyers often think that there will be others interested when they are the only ones interested especially if it is a niche business.

 

[poohbear99]

I'm aware that there's a well known entertainment brand interest in the venue and are looking to acquire the business for an entirely different use and are therefore probably less interest in the state of the business!