Business Acquisition, Merger and Disposal

Distressed disposal following a parent's insolvency

Peter was the UK based director of a construction consultancy and property management group employing 120 people across four locations. He had been in the post for a couple of years with the brief from the new and substantial US owners to turn the business around. He was about half way through the three year programme he had set himself and was feeling quietly pleased with progress, thanks partly to the financial backing from the US.

The news that the US owners had been placed into Chapter 11 was a bolt from the blue, quickly followed by the confirmation that no further funds would come from the central treasury function, the day before the payroll and with staff looking forward to Christmas. Customers and suppliers were quickly on the phone demanding answers to what he proposed to do. His fellow directors based in the US all appeared to be uncontactable. It was down to him.

We arrived the same day and quickly took stock. It was clear that there was a viable business that was worth saving. However, the loans to the parent were repayable on demand and either these needed to be restructured and replaced or the subsidiary placed into insolvency itself. There was sufficient cash flow to pay costs as they were incurred but not to meet the payroll nor existing creditors. Clearly a new owner had to be found.

We therefore negotiated with the staff that they would be paid weekly in advance for future services but that the payroll for the past month would be deferred and paid by a purchaser of the business. We rapidly prepared sales particulars, got on the telephone to likely purchasers and arranged for site visits. After a rapid sales negotiation and contract race, we sold the business for close to book values. 120 jobs were saved and the outstanding pay settled, the week before Christmas.

The whole process took ten working days. Not bad going, said Peter to us as we had a well deserved celebratory drink.

"Prompt action to sell the business can often bring a nearly normal recovery for creditor even in liquidation situations. However, the liquidators need to be experienced, move quickly and be prepared to work effectively as a team with directors."

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This document explains the relevant position only in general terms. We do not intend it to be used as formal advice about a specific situation, for which you should consult with a qualified insolvency practitioner and not rely upon this document. Portland would be pleased to advise you formally and you should contact one of the directors listed to arrange this. Portland regrets it is unable to accept any responsibility to anybody who seeks to rely on this document.