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Rescue of insolvent retail business in the new environment: Brand considerations

Buying the brand of an insolvent business can be a commercially attractive proposition for any potential buyers. In recent times, this has been highlighted in a spate of acquisitio...

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Date: 24/02/2021

Authors:

Thomas edwards colour 2017

Tom Edwards

Associate

Buying the brand of an insolvent business can be a commercially attractive proposition for any potential buyers. In recent times, this has been highlighted in a spate of acquisitions of fashion brands. However, the purchase of the brand of a company in administration can have its pitfalls, and given the time-sensitive nature of the process, there are a number of things purchasers need to be aware of:

  • First and foremost, buyers need to check that the intellectual property encompassing the brand (including any trade marks the company relies upon) is actually owned by the company in administration. Buyers should carry out due diligence to ensure that that brand (or any part thereof) isn’t actually owned by another company which is not insolvent and therefore has subsisting ownership rights to the brand. For instance, the brand, or certain aspects of the brand, may be owned by an internationally based group company of the entity in administration, and simply licensed to the company. The buyer should ensure that the assets they are received mirror their expectations of what they are purchasing.
  • There may be arrangements under which third parties have the right to use the brand. Buyers will need to carry out due diligence to check if this is the case. For example, a company may have licensed the use of its brand (internationally, or even within the UK) under a franchise agreement, a distribution agreement, or otherwise. If any such agreements exist, and the rights contained within them are subsisting, then the buyer may find that their use of the brand is restricted by these existing arrangements.
  • Ensure you are aware of the costs of transferring the trade mark portfolio (notably, any official fees to record the transfer). If the brand you are buying encompasses a range of trade marks then these costs can quickly add up (especially if the marks are registered in jurisdictions outside of the UK and EU, where official fees to transfer a mark can be very expensive). Ideally, the trade mark portfolio would be moved into an SPV limited company that the buyer can purchase as a whole, to save the buyer having to pay each individual transfer fee themselves, however, this can be a difficult (and unlikely) proposition in an administration scenario. Purchasers need to be aware that they may have to incur the costs of the transfer formalities.
  • Check the transfer includes goodwill. Broadly speaking, goodwill is the intellectual property term for the reputation of a business and the positive relationship consumers have formed with the brand. Therefore, when purchasing the brand of a company, the buyer should ensure that they are also receiving the rights to the reputation of that brand, so they can enforce against any infringement of that goodwill, and so that the buyer will own that goodwill as an asset (which may have significant value in its own right).
  • Watch out for domain names and social media accounts. Not only does the buyer need to be able to purchase ownership of these accounts, but the buyer also needs to ensure they are clear on how they will gain access to these accounts. Prior to concluding the purchase, the buyer should ensure that all relevant access and login details are readily available and valid, and that they will be provided to the buyer immediately on completion (and the buyer should make sure they change any passwords as soon as possible!)
  • Finally, if there is a continuity of management between the distressed seller and the buyer and an intention to trade under a name which was the same or similar, careful thought will be needed to avoid the risk of criminal liability and personal liability for the new company’s debts under the Insolvency Act 1986. There are often ways around this but careful planning is needed

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