Often during a sale campaign a Receiver or Liquidator will seek non-refundable deposits from interested parties in order to participate in a sale campaign. This is something foreign to many parties who have never dealt with an insolvency practioner before. It is certainly understandable why a potential purchaser would be reluctant to part with their money given that they would have had very little time to undertake a due diligence before having to part with their money.
This ‘deposit’ can sometimes be as little as a ‘documentation fee’ in order to cover the cost of putting together the Information Memorandum as part of the program to a significant amount of funding as a down payment on the final purchase.
Why does a Receiver or a Liquidator demand these payments being made by interested parties? As you would expect, the business over which they have been appointed is already losing money and the ongoing funding need to maintain the business operations in order to try and get a ‘going concern’ sale can be prohibative. Accordingly, these deposits are often used to plug the cash flow hole whilst the sale program continues. It needs to be non-refundable as the Practitioner will be using these funds to pay wages etc and therefore can’t be refunded.
Deposit moneies are also used to ensure that the Practitioner is dealing with only genuine buyers… How many ‘tire kickers’ are willing to stump up the cash? Time is money in these transactions as every day spent dealing with non-genuine parties is another day that wages and trading costs have to be paid.
However, a purchaser wants to ensure they are getting some value for their deposit and this is often something more than an ability to be considered just as a purchaser. Practitioners often have very little to throw into a deal as a sweatener but such things as exclusivity is often used. This is not without its own difficulty due to the obligation to get best value for the assets and to have only one party in on a deal is likely to compromise getting a suitablly competative environment.
Understanding what the Practitioner can throw into the deal and what is clearly ‘off the table’ is a craft all of its own. Bringing in someone who has experience in negotiating in an insolvency environment can often be is weight in gold in being able to cut through and get a deal done…. Quality assets can often be bought at bargain prices but only for those who truely understand the risk and price it accordingly. Not getting burnt on the way in is only half the fun.
Whant to know more? Just ask me
Adrian Hunter 