There are two main types of contracts a business might enter into with a receiver or liquidator (insolvency practitioner).
The first is a contract to purchase either a business or property from the administrator or liquidator. The other is a contract to supply goods or services to an administrator or liquidator who is continuing to run the business of the company in financial distress.
Sale contract buyer beware
Contracts to purchase businesses or assets from insolvency practitioners will always contain numerous exclusion clauses. The general effect of these clauses is to make it clear that the insolvency practitioner takes no responsibility if there is anything wrong with the assets or the business being sold, including the possibility that the company selling the assets, in fact, does not own them. Essentially almost any and every risk associated with the assets is the responsibility of you as the purchaser.
This is effectively summed up in the old phrase “buyer beware”. You may only have a limited period of time to carry out due diligence on the company and potential issues with the business or assets may not arise for a considerable period of time. The contract will always be drafted to ensure that you have no right to claim any compensation from the insolvency practitioner or to terminate the sale contract.
Trying to negotiate on these terms is often very difficult as insolvency practitioners are most unwilling to take on any personal responsibility in this sale process as they simply do not know what issues can have arisen before their appointment.
Supply contract, insolvency practitioners personally liable
Often an insolvency practitioner will wish to continue running the business for a period of time to improve the prospects of selling the business or its assets.
To do this they will try to engage essential suppliers and contractors of the company to continue to carry out work or provide supplies.
Often of course the suppliers or contractors will be owed significant debts by the company and will not be interested in increasing their exposure to this company. While this is a legitimate point of view it can be short-sighted.
The reason for this is that the insolvency practitioner themselves is personally liable for the costs of any contracts they enter on behalf of the company. This applies even if they do not recover the money back from the company they are appointed over.
This can be especially useful for the business supplier or contractor who may still have a product that can only be used for that particular business or is unable to sell that product to any other party in any reasonable period of time.
Reviewing these contracts
There can be benefits in entering into these contracts with insolvency practitioners, however, insolvency law is complicated and these contracts can be time-consuming to review and prepare with settlement usually required in a very short period of time.
Our firm has negotiated numerous sale and supply contracts involving insolvency practitioners over the years including large building contracts for apartment blocks, a sale of a publishing business, business sales, asset sales, supply agreements and numerous others.
If you are looking into purchasing any assets or entering into any contract with an insolvency practitioner please contact us.
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