Lees Solicitors - Business Sales - ensuring security!

Business Services News

Business Sales - ensuring security!


Business Sales - ensuring security!

The current economic climate has made it difficult for buyers of businesses to obtain the full funding required for the acquisition from their bank.

To get around this "funding gap" it is becoming more common for the Seller to agree to finance some of the shortfall by deferring part of the payment they are to receive until a later date.

For the seller this can make the difference between a viable deal and a transaction which falls flat, but there are huge risks for the seller if they are not properly advised.

You need to consider what security you have to make sure that the payment is made when due. A charge over the target company or the company which is purchasing is a good start, but what if they become insolvent?

We would always recommend looking at additional security such as a personal guarantee from an individual buyer or the directors of a corporate buyer.

You also need to consider whether there are other creditors whose security will have a prior claim. If the bank is lending money to the buyer to fund the deal then they are likely to require their security to take priority. If you take a personal guarantee from the directors, have you checked whether they own their home or is there a mortgage which will take priority in the event of their bankruptcy?

It can be tempting to agree to these kind of arrangements in order to secure a sale, but it is important to ensure that you take the right advice to avoid a very expensive problem in the future.

Jon Bloor

 

This article provides a summary of a recent case/change in law/news item. It is intended for general information purposes only and is not to be relied upon. It does not constitute legal advice and should not be treated under any circumstances as a substitute for legal advice. Lees Solicitors LLP does not accept any responsibility for any loss that may arise from reliance upon the information contained within this article. The copyright in this article is owned by Lees Solicitors LLP and permission must be sought before reproduction or publishing.


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