Guide to buying assets or a business from a company under external administration

When a company is facing financial difficulties, several events may occur which leads to the appointment of an external administrator.

While this guide will not deal with the various forms of external administration, it is important to understand that while the company is under external administration, the affairs of the company are managed by the administrator and the powers of the directors of the company to make any decision ends. If you are considering purchasing some or all of the business run by a company under administration, we recommend that you take note of the following:

  • Timelines are extremely tight and you need to move quickly. Forget about the normal transaction process with set due diligence periods. If the deal is not done within a short period of time (often only a few days), it is likely that the customers of the company have terminated their contracts, the employees have left and there is nothing to buy anymore.
  • Focus on commerciality. The most important thing is to establish a working relationship with the external administrator and together find a way to ensure the key assets of the business are protected and able to be transferred to you upon a sale.
  • Be prepared to take risks and factor these risks into the price you are willing to pay for the business or assets.
  • Try to understand why the company failed as it will help you to consider what the areas are you need to focus on in running the company should you buy it.
  • Ensure you obtain legal, tax and accounting advice to assist with the purchasing process.
  • How will the transaction be structured – asset sale or business sale? Alternatively, will you have to buy shares in the company?
  • Consider whether to buy the whole business or some of the company’s assets. While it may be preferable to only buy some assets and leave some behind, remember that external administrators will try to maximise the return for creditors so generally the external administrator will favour you buying the whole business and therefore taking on some or all of the liabilities.
  • You are very unlikely to be able to rely on any material that is made available to you by the external administrators so make sure you independently verify as much information as possible. Examples include physical inspection of fixed assets and speaking with as many contractual parties of the company as possible.
  • Analyse the key stakeholders and relationships of the company: Who are the customers, who are the suppliers, talk to as many customers and suppliers as possible to see whether they will support you should you purchase the business. Find out whether the reputation of the business has been irreversibly damaged.
  • With the consent of the administrators, talk to the company’s employees. Will they stay with the company if you buy it? Do you understand the total liabilities you will be taking on if you offer to take over (part of) the employees. Make sure you know the total amount of accrued long service leave, personal leave and other entitlements that you will be taking on and factor this into the price you are willing to pay.
  • Will you need some or all properties currently leased by the company? If so, make sure you talk to the respective landlords and work out whether they will support you buying the business.
  • Make sure you get the consent of the administrator before talking to any stakeholders (contracting partners, landlords etc) of the company.
  • Make sure you have the financial capacity to not only purchase the company but to keep it going until it is profitable again.
  • Consider whether you should buy the debts of the company or not. How likely is it that you will be able to collect the debts?
  • Get searches of the Personal Properties Securities Register done to understand which securities are registered over the assets of the company and to understand which assets you are likely to purchase at settlement. If there are several security providers, you may have to get several approvals to any deal you negotiate. Ideally, obtain formal releases from all secured parties at completion, however, given the tight timeframe, be prepared to settle the purchase and deal with formal releases after settlement.
  • Buying from liquidators as opposed to voluntary administrators or receivers may mean you need to consider different issues. Make sure you understand the differences between the different forms of external administration.
  • Understand that it is unlikely that all third party consents will have been obtained at completion. Try to talk to the third parties and get their in principle approval and obtain formal consents after settlement.
  • Don’t try to negotiate the sale agreement too much – assess the risks and fight for key commercial points. It often achieves little and just slows down the process. For example, accept that you will not be provided with any meaningful warranties or indemnities.
  • Be sure to understand that you will not be able to make a claim against anyone if any aspect of the company turns out to be different from the facts that were represented to you.
  • Remember that the administrator may not know much about the business as its appointment may only be days old. Don’t confuse the administrator with the prior management of the company.

While buying from an administrator may seem risky, with the right advice some risks can be minimised and you may be able to purchase a business or assets for a good price.


Jacqui Barrett

Jacqui Barrett

Partner & Head of US Desk

Jacqui assists clients with mergers and acquisitions, corporate structuring, capital raisings and managed investment schemes.

Oliver Jankowsky

Oliver Jankowsky

Partner & Head of International Practice

Oliver is a corporate and commercial lawyer, with particular expertise in advising foreign clients on cross-border transactions.

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