Open your business – without paying the full cost.
2024 has seen insolvencies reach an all-time high and it appears that this will continue into the next financial year, given the current impact of inflation and interest rates on the Australian economy. We have seen insolvencies increase in particular businesses such as builders, cafés, restaurants and now it seems the microbrewery industry.
Now may not seem the right time to start your own business, however opportunities may exist in acquiring the assets and/or business of a company that has been wound up.
Before engaging with a liquidator on whether it is worthwhile to pursue a purchase, it may be best to understand how the company was wound up and the role of the liquidator when dealing with assets.
Liquidation can occur in one or of two ways:
Court liquidation: Court liquidation occurs when a creditor applies to the court after the failure of the company to pay its statutory demand within 21 days. If the creditor can demonstrate that the company is insolvent and is unable to pay all its debts as and when they fall due, the court appoints a liquidator.
Creditors’ voluntary liquidation: a creditors’ voluntary liquidation occurs when the company resolves to voluntarily appoint a liquidator through its directors and shareholders.
Although not in a every case, you would typically be looking to acquire the business and/or assets from a voluntary appointed liquidator, as it is likely that the key business information and assets would be on hand at the date of appointment.
The powers of the liquidator in relation to assets is to:
take control of the company’s assets
if possible, and there are sufficient funds to do so operate, market and sell the business of the company
insure and realise assets.
The role of the liquidator is to achieve the best possible price for the assets and/or business. Although it is usual practice, a liquidator may not need to test the market by advertising and marketing before selling an asset and or business, particularly when it comes to unique assets and/or business.
The earliest communication to a liquidator provides the best opportunity for the liquidator to preserve the assets key to maintaining the business, and/or conducting the business while undergoing the sale process. Consideration would need to be given to what you wish to acquire as decisions would need to be made on:
a sale of only the assets, or the entire business
whether existing contracts are to be assigned or new contracts entered into (e.g. landlord, finance companies etc.)
whether you can take on employees, or need to make offers of new employment.
If there is sufficient interest in a sale of the assets and/or business, a liquidator would look to conduct a sale process which may include but not limited to:
interested parties signing a confidentiality agreement
requiring payment of a non-refundable deposit
providing an information memorandum on the assets/business
providing sufficient time for interested parties to submit their offer.
The key factors a liquidator will consider in assessing any offer is the:
price
certainty of sale (signing of non-disclosure agreement, security payments and payment of deposits if successful)
ability to settle sale (cash, subject to finance, vendor terms)
conditions of sale (assignment of leases or supply contracts, employment of key personnel, due diligence)
timing for settlement of sale
The growing number of insolvencies and failing businesses presents an opportunity for those with the appetite to start their own venture with a substantial discount by purchasing the assets and or business from a liquidator.
If you are interested in acquiring the assets/business of a company in liquidation or want further information on this topic, reach out to your local Worrells Principal for a confidential, no-obligation chat.
