Should You Purchase an Insolvent Company?

While it is possible to purchase insolvent companies, you should always tread with caution, as such organisations are likely to be riddled with debt. Taking on the challenge of turning companies around may seem like a worthwhile enterprise, but that’s only if things change for the better. It’s always a risk, and should things get more difficult for your newly acquired company, you could be dragged into the mud yourself.

Before you jump the gun and take on a failing company, it’s always worth getting professional advice. Financial specialists will be able to analyse the management accounts and take a view on the ongoing financial viability of the company.

Often, insolvent businesses are sold during administration procedures. The Administrators are able to sell a business from within a company with the proceeds of the sale flowing back into the Administration potentially for the benefit of creditors.

Whether you can actually turn a failing company around really depends on some key aspects. Firstly, take a look at your own credentials and think about whether your own finances and expertise within the industry you’re entering is actually substantial enough to make a positive impact. Thorough research is key here as no two companies are ever really the same, so take a very close look at things like company reputation, competitor strength and whether there’s a sustainable competitive advantage.

One of the main drivers behind any company is the employees. If the employees have been through a lengthy period of uncertainty in terms of their employment and the direction of the company, you need to step in right away and relay their fears with a clear, understandable plan as to how you will turn things around. Making sure staff members retain the same salary, benefits and employee rights is a legal requirement and needs to be fully considered prior to the transaction taking place.

An insolvent company is likely to have annoyed suppliers. These are relationships which need to be remedied as soon as possible. All beginnings are difficult, but once you get people back on board with the company and everyone realises that brighter days lay ahead, you should start to see an Improvement.

Procedures such as administration and compulsory liquidation may seem incredibly confusing! Don’t worry! Here at RG Insolvency, we have highly experienced and fully licensed insolvency practitioners who can explain precisely what each of these entail should you ever need guidance for your own company or companies you’re thinking about purchasing. Simply contact our team today for impartial advice.