Goodwill purchase from liquidating company

[Jessica8789]

Hi all,

I’m looking to buy the assets - including the goodwill - from the liquidator of a competitor company (“old co”) which entered liquidation a month ago

My concern is that the director of old co has been trading that entity since late 2023 using another company she also owns (“new co”). Essentially she’s used assets belonging to old co (ie the staff, website, socials, customer databases, email address, phone number etc), to acquire contracts for services and then told the customers to pay new co. Plainly she knew she was going into insolvency. She’s still doing this today!

If I buy the goodwill etc of old co, do I have a claim against new co/the director for all the money and/or contracts that she’s siphoned off from old co and funnelled into new co, since late 2023?

Thanks!

 

[ChrisCallaghan]

I'm afraid there isn't a straightforward answer to this one, as naturally there would be a lot of variables.

The best placed people to answer these questions are the appointed liquidator (and their agents), especially when it comes to any purchase agreement and its terms. Have you approached them yet?

 

[Jessica8789]

I'm afraid there isn't a straightforward answer to this one, as naturally there would be a lot of variables.

The best placed people to answer these questions are the appointed liquidator (and their agents), especially when it comes to any purchase agreement and its terms. Have you approached them yet?

Hi and thanks for your reply!

Yes I’ve spoken to the liquidator and he raised this as a possible claim I would have, n the event I bought the goodwill. I just struggle to what the legal claim would be.

The director has plainly passed all the money received on those contracts - which she acquired using old co’s assets and which she also serviced using old co’s assets - to new co.

 

[ChrisCallaghan]

I think the reality would be that any claim, however it would be structured, would be costly and hard to win.

You may wish to accept letting any claim go if you're considering going ahead with purchasing the assets and goodwill from the liquidator.

 

[Jessica8789]

I think the reality would be that any claim, however it would be structured, would be costly and hard to win.

You may wish to accept letting any claim go if you're considering going ahead with purchasing the assets and goodwill from the liquidator.

Thank you

I actually have a friend who used to practise law, meaning I’d not incur any costs for his services to run the action. So as long as we ensured it would be below the small claim threshold, the costs would not be that much at all. I just need to formulate a legal basis for the claim (to reduce the amount of work my friend would have to do).

I also find it a very interesting point, trying to work out what the exact civil cause/s of action would be! I assume it’s something along the lines of conversion or similar. I’m intrigued!!

 

[fisicx]

@Chris Callaghan - could the owner on new co keep using the assets (especially the client list and goodwill) after selling to @Jessica8789?

How could you even prove they are still using the data?

 

[Jessica8789]

@Chris Callaghan - could the owner on new co keep using the assets (especially the client list and goodwill) after selling to @Jessica8789?

How could you even prove they are still using the data?

Nope, the owner of new co is the same as the owner of old co and so they could definitely not keep using those assets of old co, while running new co. Unless new co bought those assets. After the sale of them - to me - those assets now only belong to the purchaser (ie me).

It’s intriguing and such an interesting one to try to formulate into a legal claim on behalf of the new owner of old co’s assets isn’t it?!?

 

[Gyumri]

Yes I’ve spoken to the liquidator and he raised this as a possible claim I would have, n the event I bought the goodwill. I just struggle to what the legal claim would be.

The short answer is that you would have no claim because of the exemption permitted on the re- use of company trading names - if the name has been used for the purpose of trade within 12 months of the liquidation by NewCo - which it has been.

So the liquidator has no goodwill to actually sell you.

I think the reality would be that any claim, however it would be structured, would be costly and hard to win.

That's the best advice I've read in a long time. The harsh reality is that litigation is akin to a mug's game, where the only winners are the lawyers (and barristers).
I would get rid of that litigation itch asap and concentrate on developing your business.

 

[fisicx]

Nope, the owner of new co is the same as the owner of old co and so they could definitely not keep using those assets of old co, while running new co. Unless new co bought those assets. After the sale of them - to me - those assets now only belong to the purchaser (ie me).

It’s intriguing and such an interesting one to try to formulate into a legal claim on behalf of the new owner of old co’s assets isn’t it?!?

I agree you would be buying the assets but the old owner would still have the client list. They could steal your customers.

 

[Jessica8789]

The short answer is that you would have no claim because of the exemption permitted on the re- use of company trading names - if the name has been used for the purpose of trade within 12 months of the liquidation by NewCo - which it has been.

So the liquidator has no goodwill to actually sell you.


That's the best advice I've read in a long time. The harsh reality is that litigation is akin to a mug's game, where the only winners are the lawyers (and barristers).
I would get rid of that litigation itch asap and concentrate on developing your business.

I’m really sorry, but your answer misses one point; that the insolvency rules require there to be a 12 month solid period of trading in the immediate run-up to the date of liquidation for her to be allowed to trade, using the same or similar name. There has not been a full 12 months of trading in this case. Rather only an about three months worth. In any event, even if there was, being allowed to use a similar name or the same name does not mean that the second company is allowed to simply avail itself of assets that belong to the first company. So again, I’m really sorry but I don’t follow the logic here? Am I being stupid?
Sorry, as I say, I just find this so interesting. I don’t mean to be contrary!

 

[Jessica8789]

I agree you would be buying the assets but the old owner would still have the client list. They could steal your customers.

Sorry I don’t follow why you say the old Still have the cliente list. The database of Customers belongs to the old company. that’s been confirmed as one of the things that’s being sold by the liquidator, amongst the assets. This is quite usual. She’d be committing data breaches amongst other things if she tried to use this. Whatever that calls of action would be there, the issue remains that she most certainly would not own that database.

 

[fisicx]

Correct, she would not own the database but she is currently using it and could easily have taken a copy. For all you know she has been contacting everyone to migrate them to the new business. Your supposed goodwill may be worth nothing.

Old owner emails Mrs Jones with details of the new company.

You buy the database and contact Mrs Jones.

Mrs Jones replies to you saying she is now a customer of the new company.

You delete Mrs Jones from the database.

Rinse and repeat and you end up with nothing.

 

[ChrisCallaghan]

I’m really sorry, but your answer misses one point; that the insolvency rules require there to be a 12 month solid period of trading in the immediate run-up to the date of liquidation for her to be allowed to trade, using the same or similar name. There has not been a full 12 months of trading in this case. Rather only an about three months worth. In any event, even if there was, being allowed to use a similar name or the same name does not mean that the second company is allowed to simply avail itself of assets that belong to the first company. So again, I’m really sorry but I don’t follow the logic here? Am I being stupid?
Sorry, as I say, I just find this so interesting. I don’t mean to be contrary!

Pretty much spot on, but a director can make a court application to be granted permission to re-use the same or a similar name.... or they may just choose to ignore this rule! If so, you can report them. See point 8 at https://www.gov.uk/government/publi...about-somebody-who-is-using-a-prohibited-name

Sorry I don’t follow why you say the old Still have the cliente list. The database of Customers belongs to the old company. that’s been confirmed as one of the things that’s being sold by the liquidator, amongst the assets. This is quite usual. She’d be committing data breaches amongst other things if she tried to use this. Whatever that calls of action would be there, the issue remains that she most certainly would not own that database.

As @fisicx has stated, the old director could easily have taken a copy of the client list. If so, and they are contacting old customers, you could consider taking legal action against them if you go ahead with the purchase of the good will from the appointed liquidator, but as previously stated, in my opinion this can be an expensive, time consuming an often fruitless endeavour.

 

[Gyumri]

If I buy the goodwill etc of old co, do I have a claim against new co/the director for all the money and/or contracts that she’s siphoned off from old co and funnelled into new co, since late 2023?

It sounds like the goodwill rests more with the director than with old co but the old trading name does look to be a prohibited name.

So the director could make an application for permission, which can also be made by email, although it seems unlikely that it would be approved. The government website has all the info.

the insolvency rules require there to be a 12 month solid period of trading in the immediate run-up to the date of liquidation

You are right I overlooked that she had only been trading for three months prior to appointing a liquidator for old co.

 

[Porky]

I would probably avoid this like the plague frankly. More hassle than its worth and potentially costly but its your call.

Yes, in principle new co can't use a prohibited name unless they have filed Section 216(3)with the gazette providing notice of same. So unless she agreed a pre-pack with the Liquidators to buy the assets and /or filed her notice with the gazette legally she is in effect passing off by pretending to be the same business under new co using the prohibited name without said permissions. IF you purchased the assets from the liquidator they they belong you to you and i guess you could try and claim.

However, in reality trying to prove financial loss would be a absolute nightmare, you could buy the assets from the IP and issue a cease and desist against using the name as you then own the brand but you are going down a rabbit hole of long drawn out legal challenges

Also, just the the website as an example, you might find the website is the companies and the domain is hers, then trying to divert it a challenge and she is hardly going to help you is she. My view is stay well clear of this costly situation the only winners will be the solicitors.

 

[Gyumri]

I’m looking to buy the assets - including the goodwill - from the liquidator of a competitor company (“old co”) which entered liquidation a month ago

Is the OP referring to an MVL or CVL? If the former then it means old co was solvent and so the question of the re-use of OldCo's assets and identity doesn't arise. So the OP needs to clarify the basis of the liquidator's appointment.

 

[ChrisCallaghan]

Is the OP referring to an MVL or CVL? If the former then it means old co was solvent and so the question of the re-use of OldCo's assets and identity doesn't arise. So the OP needs to clarify the basis of the liquidator's appointment.

The inference is CVL, especially considering OPs references to the oldco's director. The scenario OP has described is highly unlikely to arise in an MVL scenario.

 

[IanSuth]

personally I would ask the liquidators to explain why the goodwill has any value if they have already allowed it seemingly to pass to newco - they should be doing the investigation/dealing with abuse of customer lists etc as it is intrinsically affecting the value of old co's assets and it is their job to maximise those for the good of oldco's creditors.

I definitely wouldn't be paying any kind of premium for an out of date list of ex customers already moved to newco

 

[ChrisCallaghan]

personally I would ask the liquidators to explain why the goodwill has any value if they have already allowed it seemingly to pass to newco - they should be doing the investigation/dealing with abuse of customer lists etc as it is intrinsically affecting the value of old co's assets and it is their job to maximise those for the good of oldco's creditors.

I definitely wouldn't be paying any kind of premium for an out of date list of ex customers already moved to newco

Agree with the questioning the value of the goodwill, but in defence of the liquidator it may not be in the creditors best interest for them to pursue the directors newco. If the cost of such a claim would be greater than any potential return, then it would be questionable if worth pursuing a claim.

 

[fisicx]

@Jessica8789 - was with a friend yesterday who knows about these things and they said to run a mile. There is nothing to buy. The website and SM are worth nothing without the customer list and that no longer exists - it's all now part of the new company. The list you buy will be worthless.

 

[Mark T Jones]

I'm getting a sniff of the academic here, as in real terms it seems like a lot of effort for a small gain.

Leaving aside legality, I'd ask w questions:

1. Do you have the time and stomach for the bureaucracy and pedantry that would go with this legal battle? You've mentioned a lawyer friend, but presumably you value them sufficiently not to expect them to do it all for nothing?

2. What are you actually hoping to achieve? The customer list probably exists as a data base - it also exists on the phones, in the heads and potentially on the social circles of the previous owner. Nobody can tell the customers who to deal with.

 

[Lisa Thomas]

The short answer is that you would have no claim because of the exemption permitted on the re- use of company trading names - if the name has been used for the purpose of trade within 12 months of the liquidation by NewCo - which it has been.

So the liquidator has no goodwill to actually sell you.


That's the best advice I've read in a long time. The harsh reality is that litigation is akin to a mug's game, where the only winners are the lawyers (and barristers).
I would get rid of that litigation itch asap and concentrate on developing your business.

Gyumri please can you explain your answers above as they don't seem correct to me?

 

[Solvelaw]

Reading everyones replies, you are left with buying badwill....are the liquidators aware of this, as this seriously affects the valuation of anything here.

 

[Paul Kelly ICHYB]

Goodwill, that mythical and magical thing that doesn't really exist, except in the minds of the 'owner' and potential purchaser!

 

[Gyumri]

Gyumri please can you explain your answers above as they don't seem correct to me?

The 12 month exemption rule is of course in the insolvency rules, but I overlooked that the OP's protaganist has only been trading for three months.

Still, that 3 month period may be enough to have wiped out any goodwill in Old co, which now seems to be as dead as a dodo.

There can't be much goodwill left in a company if it has gone into liquidation, but who knows?

 

[Newchodge]

So the liquidator has no goodwill to actually sell you.

This^^^

 

[Paul Kelly ICHYB]

staff, website, socials, customer databases, email address, phone number etc

What exactly would you be buying? I assume all of the marketing bits?

What about the staff?

All you buying are the basic assets which have already been sweated by the previous owner. There is a value, but it is minimal, definitely no premium.

Forget the potential to go after the previous owner unless you can afford the legal fees (the liquidator wants to make as much as possible so would be more likely to say that there is a chance, of 'chasing 'compensation' even if very slim).

However, if this business fits into something you already do or you get it for a song, give it a punt - once you tell the client list about what has happened with the old director, you may start getting business back.