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Posted on 2 July 2012 by Conybeare Solicitors

Employment Issues – Buying a Business in Administration

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Often, the most effective way of realising value from the assets of a company in administration is to sell its business as a going concern. The High Court has recently held that a clause in a sale contract that provided for any liabilities of the seller or the administrator to rank as an unsecured claim against the seller (rather than, for example, as an expense of the administration) was valid and effective. It is the first time that the court has considered the effectiveness of such a clause (which is a common feature of administration sale contracts). The effectiveness of the clause means that a buyer will typically have limited recourse should the administrator or seller breach their obligations under a sale contract. This underlines the need for thorough due diligence and for the buyer to take responsibility for as much of the process of perfecting the sale as possible.

This checklist sets out the key employment issues a buyer should consider before buying a business that is in administration.