What is a trade sale of a business?

trade sale

A trade sale is when a business is bought by another company in order to continue the same trade. The purchaser usually operates in the same industry. A shareholding or assets can be included in the purchase, such as stock, machinery, and property. Insolvent companies are often sold through this method, particularly during administration exit processes.

What is a trade sale of a business?

A trade sale is when a company sells to another business, usually in the same industry. This type of business sale is often done with the help of a broker or an intermediary who contacts businesses that might be interested in purchasing.

Although a company may be insolvent or have creditors taking legal action, a trade sale arranged through the formal insolvency process might still be possible and offer more return for the company’s creditors.

Trade sales come in many guises- from company shares to business assets such as stock, goodwill, or property. Let’s start by taking a look at how the process works for companies that are trading profitably before we move on to insolvent businesses.

Trade sale of a solvent business

If a company is running smoothly and selling it is being considered, interested buyers will need to be given information about the business through a sales memorandum. This document should include an explanation of why the company is up for sale in the first place.

After we identify a few interested buyers, we start in-depth negotiations and commence the due diligence process. This is where potential purchasers closely examine all the information provided.

For the buyer’s peace of mind and protection, they will likely mandate specific warranties and indemnities – making it imperative to seek professional legal and financial advice at various stages.

What about the sale of an insolvent business?

businesses that are unable to pay their debts can also be sold in a trade sale, but this process is directed and carried out by a licensed insolvency practitioner (IP) instead of the company’s directors. There are various insolvency processes that would allow for such a sale to take place, including company administration and pre pack administration.

A Company Voluntary Arrangement (CVA) allows for the restructuring of company debt and offers potential to sell the business to trade buyers in the future. Depending on individual cases, it may be a viable option.

A sale out of company administration

The appointed administrator for a business in administration must decide on a plan for the company’s future. In some cases, selling the company as-is may be the best option, which would involve putting it on the open market after cutting costs and simplifying operations.

Pre pack administration and the possibility of a trade sale

A trade sale may also be possible using pre pack administration, which is a process led by a strict timeline. If a company is sold via pre pack trade sale, the process happens quickly and behind closed doors. The business assets are transferred to the new owners (who are often the existing directors) but it’s also common for third-party trade buyers to be involved. A licensed insolvency practitioner is only appointed once a buyer has been found.

If you’re concerned about your company’s financial situation and thinking a trade sale might be the right move, reach out to one of our licensed insolvency practitioners at Company Doctor. We offer free same-day consultations.

Scroll to Top