While, in general, a buyer of a business and assets from an administrator will not take over any liabilities of the seller, there are exceptions. One exception relates to employees (on which see the separate article in this series on the impact of TUPE), but there will also be certain commercial contracts of the business to consider, especially those which are integral to “business as usual” activities.
Insolvency asset purchase agreements (APAs) will typically include an obligation on the buyer to take over and perform ongoing contracts with suppliers and customers. Careful thought will be required as to whether this is commercially sensible in view of the future activities of the acquired business.
Under the Corporate and Insolvency Act in June 2020, UK suppliers of goods and services are now prevented from terminating or otherwise amending agreements with companies undergoing any insolvency procedure (other than in very limited cases). These changes were designed to ensure key suppliers vital for a business to achieve continued trading/business rescue remain in place as long as possible, particularly in the current economic climate. They are undoubtedly beneficial to potential investors in distressed companies: previously suppliers to those businesses were liable to hold distressed companies to ransom on the premise that they needed better terms or would terminate the arrangement in reliance on any insolvency clause(s).
Against this background, any purchaser should consider the following commercial contract based questions:
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