What-is-a-trade-sale-of-a-business

What is a trade sale of a business?

A business trade sale is a transaction where the buying company will carry on the operations of the acquired business. 

The buyer is typically already active in the same industry or sector. A trade sale may include the purchase of the company’s shares or its assets (such as inventory, machinery, and premises). Trade sales can also apply to insolvent companies, especially when used as a way out of administration.

 

What is the meaning of trade sale in a business?

A trade sale is a widely employed method of selling a business, where one company is sold to another company usually operating within the same industry or sector. 

Frequently, a business broker or independent intermediary represents the owner or directors, initiating contact with potential buyers.

If a company faces insolvency or legal action from creditors, going through a formal insolvency process might provide the highest returns for the company’s creditors as the most practical choice.

Trade sales can vary and involve selling the company’s shares or just its core business assets like stock, goodwill, or premises. Before delving into trade sales for insolvent businesses, let’s understand how the process works for profitable companies.

 

Understanding Trade sales for a solvent business

If a business is financially stable and considering a trade sale, it must provide information about the company to interested parties through a sales memorandum, which includes reasons for the sale.

A potential buyer might request specific warranties and indemnities to mitigate their risk, necessitating professional legal and financial support at various stages of the process.

 

Can you still trade if your business is insolvent?

Insolvent businesses can undergo a trade sale, but it’s overseen and managed by a licensed insolvency practitioner (IP) instead of the company’s directors. Different insolvency procedures permit trade sales, such as company administration and pre-pack administration.

In certain instances, a Company Voluntary Arrangement (CVA) could be considered. It enables the restructuring of company debt and opens up the possibility of selling the business to trade buyers down the line.

 

What about trade sales for a company administration? 

When a business goes into administration, the appointed office-holder needs to devise a workable plan for the company’s future. In certain scenarios, a trade sale might present the most favourable outcome, leading to the business being put on the open market, usually after implementing cost-cutting and streamlining measures.


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Can trade sales be possible using pre-pack administration? 

A trade sale could also occur through pre-pack administration, a process governed by a tight timeline. In such cases, a business’s core assets are swiftly sold, with existing directors often being the buyers, though selling to trade buyers remains a viable option.

In a pre-pack trade sale scenario, the business isn’t openly marketed as it would be in the company administration route mentioned earlier. Instead, a licensed insolvency practitioner is only appointed after a buyer has been identified.

The trade sale of an insolvent business poses a greater risk to buyers compared to a solvent one. In this case, there isn’t a formal due diligence process or warranties and indemnities. Despite these factors, there exists a market for such sales when a company becomes insolvent.

If your company is facing financial distress and you’re considering a trade sale or seeking general information about business trade sales, contact one of our licensed insolvency practitioners at Vanguard Insolvency. We offer free same-day consultations nationwide.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.