Typhoo Tea Administration Buyout – A Legal View

Supreme, a consumer goods company specialising in vapes has been confirmed as the new owners.

What is administration?

Company administration is a process used when a company faces insolvency. It involves the appointment of an administrator, usually an insolvency expert, to take control of the company. The main goal is to try to rescue the business, either by reorganising its debts or improving its operations. If that’s not possible, the administrator may look to sell the company or liquidate its assets to pay creditors. The process is designed to give the company a chance to recover, or at least ensure creditors get the best possible outcome. It’s governed by the Insolvency Act 1986.

Why buy a company in administration?

The UK business market is full of opportunities, especially for investors looking to grow through mergers and acquisitions. While there’s always some risk, buying distressed businesses and their assets can lead to rewarding chances. When a company goes into administration or insolvency, its assets are often sold at a fraction of their value, which can be a great deal for buyers. If you’re looking to get ahead of the competition and scale up, these deals can offer high returns and long-term growth.

Key considerations:

Asset or Share Purchase?

When acquiring a distressed company, you can choose between an asset purchase or a share purchase. In an asset purchase, you buy only the company’s physical assets, like inventory and equipment, giving you the flexibility to select what you want and making it easier to secure financing. With a share purchase, you buy all the company’s shares, gaining full ownership, which can be more cost-effective in the long run since you don’t have to negotiate for individual assets. However, financing is typically harder to secure due to the higher risk involved. The best option depends on the company’s situation.

Legal Due Diligence

Legal due diligence is crucial when buying a company in administration because it helps uncover any potential risks or hidden problems that could affect the business’s value or future. Companies in administration may have ongoing legal issues, unpaid debts, or regulatory challenges that need to be carefully checked. If you skip this step, you might end up inheriting costly problems without realising it. Due diligence also ensures the deal is set up properly, protecting your interests and confirming that the company’s assets and operations are in good shape. It’s a key step to make sure you’re fully informed and avoid any surprises after the purchase.

Time

Another key consideration for a buyer is the timescale, often when buying a company that is in financial difficulties there is a significant time pressure to get the deal over the line quickly as the buyout will be crucial in saving the company from having to enter liquidation and insolvency. As a result there is limited time for a buyer to carry out sufficient due diligence, this is a further concern for buyers in the event an asset purchase is chosen as it is likely that the seller company will use the proceeds of sale to pay off their creditors and so if there is any need for post completion litigation a seller may not have the funds to pay off any claims.