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Purchasing a loss making business

5th October, 2017
Keith Steven

Written ByKeith Steven

Managing Director


07879 555349

He has rescued hundreds of companies and helped many of them turn around using CVA or pre pack. Could he help YOUR company?! Call him now 07833 240747

Keith Steven

”I wonder if you are able to assist. I am looking to purchase a loss making company (£1.3m historial debts) and in order to achieve the turnaround strategy, I *think* I will need to liquidate the company. In essence I need to relieve the business of some difficult contracts, such as: – (possibly) some staff – premises lease – contract car lease(s). The remainder of the assets, liabilities etc I will want to take with us to a new company. Perhaps liquidating the business is a bit drastic? Perhaps you can help? I am looking for some advice as to whether this is a legal and appropriate approach and to work with someone through the liquidation process (if appropriate). ”

Keith’s response: 

Yes it is all legal, eminently sensible and there are at least three ways to do this. It just depends on your objectives, the vendor’s objectives, any secured lenders requirements and the best tool for the job can be found below.

1. One way requires little or no cash to buy the business, freezes debts, and leverages tax and VAT for 6-10 weeks… enter the company into CVA. It means that some future profits are used to pay off creditors. There is no noise of administration or liquidation and you can leverage creditors monies without risking your own. See guides here

2. The second is Administration pre-packaged sale. Here the company is put into admin having lined up an agreed purchaser (you). See guide here and click guide to pre-pack flowchart 

3. The third is acquire the company then liquidate it having hived down the assets to a new clean subsidiary. See this page for brief guide.

I am happy to talk to you about the processes but perhaps an overview of the target would give us a better steer. We do not charge for initial advice or meetings so I suggest you give me a call on 07974 086779 to describe your objectives for the business in more detail? I will need to know the debt structure (secured, tax and VAT and trade) the sector and your plans. You can keep it confidential for now if you wish.

If we both believe a meeting is appropriate we do not charge for the initial meeting. If we are appointed it is against a written agreement as to cost.

I look forward to hearing from you.

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What Does A Winding Up Petition Mean?

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

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What Does A Winding Up Petition Mean?
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What Is A Winding Up Petition By HMRC or Other Creditor

A winding up petition is a legal notice put forward to the court by a creditor. The creditor petitions to the court if they are owed more than £750 and it has not been paid for more than 21 days. The application, in effect, asks the court to liquidate the company as they believe the company is insolvent.

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What Is A Winding Up Petition By HMRC or Other Creditor
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Notice of Intention To Appoint Administrators

A notice of intention to appoint administrators is when the company files a document to the court to outline that it intends to go into administration if a solution cannot be found to its immediate financial problems. It can be used as part of the pre-pack administration process as well as used to restructure a failing business to avoid its liquidation.

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Notice of Intention To Appoint Administrators
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What Does Going Into Administration Mean?

Going into administration is when a company becomes insolvent and is put under the control of Licensed Insolvency Practitioners.  The directors and the secured lenders can appoint administrators through a court process in order to protect the company and their position as much as possible. Going Into Administration - A Simple Guide Administration is a very powerful process for gaining control when a company has serious cashflow problems, is insolvent and facing serious threats from creditors. The Court may appoint a licensed insolvency practitioner as administrator. This places a moratorium around the company and stops all legal actions.The administration must have a purpose and the Government encourages the use of company rescue mechanisms after administration. The 3 purposes (or objectives) of Administration Rescuing the company as a going concern. Company rescue as a going concern – this is usually a  company voluntary arrangement. The company enters protective administration and is then restructured before entering into a CVA. The CVA would set out proposals for repayment of debts to secured, preferential and unsecured creditors. When the company has its CVA approved by creditors, then the administration process comes to an end after 28 days. Achieving a better result for the company's creditors This is as a whole than would be likely if the company was to be wound up (liquidation) See the differences between Administration and Liquidation.  This better result is usually obtained by selling the BUSINESS as a going concern to one or more buyers. The company and the debts are “left behind”. The better result may include securing transfer or employees under TUPE, as well as selling goodwill, intellectual property and assets. Controlling and then selling property/debtors. This is called realising assets. Then the administrator makes a distribution to one or more secured or preferential creditors, in order of creditors priority. Usually the business ceases trading and employees are made redundant.Only if the first two options are deemed unattainable, can the administrator use this third option.Under the administration option, it is possible for the company and its directors (or a creditor like the bank) to apply to the court to put the company into administration through a streamlined process.However, the law requires that any finance provider (like a bank or lender), with the appropriate security, is contacted and the aims of the administration be discussed and approved. The finance provider must have a fixed and floating charge (usually under a debenture) and the charge holder will need to give permission for the process to go ahead. Five days clear notice is required.  Be aware, though, that a secured lender can appoint administrators over a company without notice if it thinks its money is at risk.  So communication with the secured lender is essential.  

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What Does Going Into Administration Mean?

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