1. Look out for opportunities to buy businesses in distress. These could be competitors, suppliers or businesses that add value to your existing client base.

2. If a deal comes your way, you will have to be very focused on making it work rather than completing a normal deal process with all the due diligence and legal processes.

3. Time will be of the essence. If you buy a company from administration, the information in sales particulars will not be guaranteed, so a physical inspection of the assets is recommended.

4. Obtain as much relevant information as possible by quizzing the administrator, before submitting your bid. It is important, if possible, to establish what issues affect the business, the quality of the stock, the extent of retentions of title and the status of any major contracts.

5. Ensure that appropriate releases are obtained from any existing funders who have debentures or legal charges. Check that the administrator has been properly appointed and has the authority to sell the assets.

6. One of the riskiest areas is taking over the workforce. Analyse this properly so you can assess those risks. In certain circumstances, the liabilities attaching to the employees will be so substantial that they outweigh the commercial advantages of going ahead with the purchase. Beware “TUPE” – if you don’t know what it means ask Truelegal.

7. If the business wants or needs to carry on trading in the existing premises, you need to check the existing property arrangements. You may need to negotiate separately with a third party landlord to ensure continuity.

8. To buy a company out of administration, you have to act quickly and accept you will have to take a commercial view on some parts of the deal.

9. Don’t stand on ceremony with the legal contract. You have to remember that you are buying the business from the administrator – not the previous business owners. There are certain key things which your lawyer will need to check but the administrator will not be prepared to accept personal liability for anything and will not guarantee legal title to the assets. There will, therefore, be gaps in the contract.

10. You won’t have the opportunity to carry out full financial, commercial or legal due diligence. As time is so critical, you will need to take a view on many of these assets. The risks associated with this should be reflected in the price you offer. Don’t expect to be able to make any claims after the event. In a normal transaction, warranties and indemnities and completion accounts are used effectively
to adjust the price if there is a post-completion problem. This will not be available in any insolvent situation.

Truelegal has a great client base of enthusiastic entrepreneurs, individuals ready and willing to react to the market place.  Part of that strategic adaptation may involve structural changes to the business, or a decision to buy a distressed competitor.

With our commercial background we have managed to assist many business owners recently to mskr not just their own business more robust, but to msximise the many opportunities out there for those willing to step up.

If you need a business solicitor able to meet the current challenges please contact us for a no obligation meeting – at a location to suit you. We believe we can make the business case that we can add value to your business rather than being a legal fee-drain on your bottom line.

The purpose of an agency agreement is to set out the terms and conditions of the relationship between the business which wants to sell stuff (the Principal) and the intermediary who agrees to sell it on their behalf (the Agent). When a sale is made by the Agent, the law deems that a contract is formed between the Principal and the end customer.

Not to be confused with?

• A distribution agreement, in which a supplier sells goods to a distributor who then, as a separate transaction, sells the goods to his or her customer. There is no contract of sale between the supplier and the ultimate purchaser of the goods.
• A franchise agreement

• Subsidiaries or branches

A word of caution…

If you are planning on using a business intermediary, you would be wise to seek professional legal guidance. Not only does the law attach special legal meaning to agency relationships, but it’s possible for parties to find that they have entered into such a relationship without being aware of it.

Key clauses in an agency agreement include:

• A detailed breakdown of the duties and responsibilities of both parties
• The geographic region in which the Agent will operate
• Whether the Agent will have exclusive or non-exclusive rights
• The rate, method and timing of payments
• Any non-compete agreement
• Protection of trade secrets and confidential information
• Level of authority to make commitments on behalf on of each other
• The duration of the agreement, termination and how breaches of the agreement are handled

It is important that the Principal and Agent have clear written commercial terms agreed so that both parties know what to expect from their deal. Many relationships between suppliers (Principals) and Agents have gone wrong because they do not have this simple document in place. They have often relied on orally agreed terms or negotiations which have proved costly in terms of lost sales, commission and subsequent legal action to define and enforce the commercial terms. An agency agreement will make your relationship clear, giving both sides confidence in making the most of the opportunity.

European Directive and UK Commercial Agents Regulations 1993

Agency law is one of the areas where European legislation has had significant impact, and most of it is in favour of the Agent. An EC Directive was introduced to harmonise the law relating to commercial agents across Europe. In the UK, the EC Directive was implemented by the Commercial Agents Regulations 1993. They contain important provisions, which the Principal or Agent ignores at their peril, including:

• The right of the agent to have a written agreement
• The entitlement of the agent to a reasonable commission in the absence of any fee or percentage agreed in advance
• When commission is payable and on what transactions
• Minimum periods for notice of termination of indefinite agency agreements
• The right of the agent to either “compensation” or an “indemnity” on termination

The most important change which resulted from the Directive and the Regulations was the right of the agent to claim compensation or indemnity on termination of the agreement. Many Principals have been caught out here and many Agents have been unaware of their rights.

As a Principal it is important to structure your agency agreement to take into consideration the Commercial Agents Regulations 1993 or any dispute could be very costly in terms of compensation.

If you’re interested in starting your own business, it can be less daunting to buy an existing operation with a proven track record than to set up yourself from scratch. However, the time and effort required to find, research and complete a business purchase is considerable and there can be many pit-falls along the way: you’d be foolish to embark on the process without the professional advice and guidance of an experienced business solicitor and accountant.

Where to begin

Before you can even begin to look for a suitable business purchase there are many important decisions to be made. You need to give careful consideration to what kind of business will be best suited to your interests, skills, financial status/expectations and level of commitment – and, just as important, how the purchase will be funded. You’ll also need to research your chosen business sector and decide what legal structure will work best for you: franchise or existing business; limited company or partnership?

Making the right decisions at this early stage could save you a lot of money and mean the difference between success and failure.

Where to look

 If time is precious, you may want to engage the services of a business transfer agent who (just as an estate agent finds properties to match a buyer’s criteria) will do the searching on your behalf. Otherwise, you’ll find details of businesses for sale in newspapers, trade journals and magazines and, of course, on the internet. On the other hand, if you have already identified a potentially suitable business but that business is not immediately for sale, you should use a professional advisor to make an anonymous initial approach on your behalf.

Negotiation and valuation

Once you’ve approached your potential business acquisition, you’ll need to negotiate an initial set of principal terms upon which the deal will be based. You should expect to sign a confidentiality agreement before any information is exchanged.

Thorough preparation for this process is vital: you need to attend negotiations with a list of the information you require and an understanding of the implications. An experienced company/commercial solicitor will help take the headache out of this process and ensure that nothing is missed. Key to the negotiations is the need to acquire sufficient information about the business against which to make a fair valuation including:

• past activities and track record
• current performance (sales, turnover and profits)
• financial situation, taking into account cashflow, stock, debts, expenses, employees, and assets (including intangible assets such as good will, reputation, intellectual property rights and relationships with suppliers)
• the competition
• current trends in the industry
• the reasons behind the sale

Inevitably the seller will have a different view as to the true value of the business and the value will always be subjective. However, remember that, in time, a good business will always justify the purchase price whereas a bad one may not ever allow you to recover financially.

The devil’s in the detail – due diligence

Due diligence is an agreed period (usually 3-4 weeks for a small business) when you will be able to access the business’s books and records to verify that all of the information that you have been told so far is true and accurate. Often, the seller will agree to take the business off the market during this period (the exclusivity period) in return for an initial down payment.

A proper and effective due diligence procedure goes way beyond simply verifying the financial information. Your review must also include a thorough investigation of the company’s:

• sales
• marketing
• employees property (particularly lease commitments)
• contracts and orders
• customers
• competition
• intellectual property rights (patents, trademarks, licences)
• systems and technology
• suppliers
• research and development
• legal and corporate issues (including any outstanding litigation).

In short, you want to complete the due diligence period knowing exactly what you are getting into. Potential deal breakers and other key issues should be raised immediately to maximise the time available to resolve such matters. In particular, you need to take legal advice about what happens to any existing employees as there are a raft of regulations that apply when a business is transferred as a going concern. The legislation is complex but, in brief, any changes to staff that you may wish to make after the purchase could result in you being summoned to an employment tribunal for unfair dismissal. It’s vital, therefore, that existing employees are informed and consulted during the due diligence process.

Completing the deal 

During the due diligence period your solicitor will draft a ‘sale and purchase agreement’ incorporating all the agreed terms of the sale. Subject to renegotiation as a result of the findings from due diligence, you and the seller will then exchange contracts with completion at a late date or agree to exchange and complete simultaneously. Completion will be subject to:

• transfer of finance
• transfer of contracts/licences
• transfer of any leases

If you would like more information about how we can help you fulfil your company secretarial duties please contact Truelegal.

You need to give careful consideration to what kind of business will be best suited to your interests, skills, financial status/expectations and level of commitment – and, just as important, how the purchase will be funded. You’ll also need to find out as much as you can about your chosen business sector and decide which legal structure will work best for you: e.g. franchise or existing business; limited company or partnership?

Making the right decisions at this early stage could save you a lot of money and mean the difference between success and failure.

We can act as your business mentor from start to finish and guide you through the whole process, including negotiations, due diligence, advising on the rights of any existing employees and drawing up the sale and purchase agreement.