We're running out of cash, but we have a great future; why don't we see if someone will buy the business?
What is a Trade Sale?
These are often heard comments from our advisors and turnaround team. Sometimes directors think that someone will buy the company out and the problems will be quickly solved. In our experience that's simply not the case.
Often in larger cases the banks or aggressive creditors will demand that the company put itself on the market via Administration etc. This guide looks at both scenarios.
If your company is insolvent; but not in Administration, Receivership, CVA or Liquidation yet.
So you are running out of cash, pressure is mounting and creditors becoming aggressive. Trade sale may seem to be an option. These are some of the reasons why a quick trade sale when the company is insolvent don't happen very often!
- Buyers will want to know all about the cashflow problems, assets liabilities, markets, order book, customers, debtors & creditors, staff, management and the plans for the business
- This is called due diligence, most buyers walk away because due diligence fails to satisfy the requirements to avoid RISK.
- Buyers dont want to take on the debt from the banks and unsecured debt.
- Most sellers have far too high a value in mind for their business.
- Many sellers wont give warranties and guarantees to the buyer because of RISK, buyers won't buy without warranties and guarantees!
- There are outstanding legal actions = RISK.
- Banks may worry about loss of control and directors procrastination, they may take action to place the company into administration to avoid that RISK.
- TUPE is a problem, if you buy a business you get all of the good and bad people issues with it.
- Finally, all of the above due diligence processes can take several months to complete. You may run out of cash and time by then.
If you company is facing or is in Administration, Receivership, CVA or Liquidation, sometimes banks and creditors demand the business is sold.
This is a common request from the creditors, if an administrator is in control he will usually seek to advertise under SIP 13, (statement of insolvency practice). We have seen cases where the administration plans are blown out of the water by creditors refusal to support them and demand to put other advisors in to sell the company.
Remember in Administration, Receivership, or Liquidation the directors are NOT in control.What if we have someone interested but they wont buy it with all of the debt? OK we are specialists in this field of insolvent sales. Using Company Voluntary Arrangement (CVA) to restructure the debt to offer a clean business to the buyer is a great tool.
Alternatively Administration pre-pack can be a very powerful way of getting the business sold on. See our guides to these mechanisms by clicking the words.
Some key advantages and disadvantages are: CVA kills TUPE issues whilst Administration does not. CVA does not kill all of the debt but Admin does. CVA is much less costly than Administration. So there are swings and roundabouts. Talk to a KSA director about this complex set of issues.
If you still feel a trade sale through CVA is a good option or Administration pre-pack seems to tick the box, call us now. Is your company an internet, recruitment, service or B2B business based in London? Want out? Call Keith Steven now on 07974 086779.