The stages of taking over a company in receivership or liquidation
Taking over a struggling company through a sale plan can allow you to acquire its business, assets, contracts, and team without, in principle, assuming all the liabilities of the company that operated them. However, this principle has significant exceptions. More broadly, a court-ordered takeover doesn't operate like a traditional acquisition: short timeframes, sometimes incomplete information, a binding offer, a court decision, and a potentially very rapid handover of the business. Here are the main steps to know before submitting a takeover bid.
A company in receivership or liquidation has caught your attention. Its business interests you, its turnover seems significant, and the deadline for submitting offers is in a few weeks.
The first reaction is often to look at the price.
This is probably not the right one.
To take over a struggling company, the first questions should be: Why did this company fail? Is its business still viable? What assets and contracts are truly necessary? Which employees should be retained? What expenses will actually be incurred after the takeover? How much cash will be needed immediately?
Because a court-ordered takeover is not just about buying a business at an attractive price. It's about building, in a very short time, a project capable of operating as soon as the court approves it.
Taking over a struggling company: what is a takeover at the bar?
To take over a struggling company, you must first understand the legal framework in which the operation takes place.
The expression "takeover at the bar" generally refers to the resumption of all or part of the activity of a company that is subject to collective proceedings.
In practice, this situation is mainly encountered in the context of a judicial reorganization or a judicial liquidation with temporary continuation of the activity.
The safeguard procedure primarily follows a logic of continuation of the business by the debtor, even if partial transfers of activities may also occur.
The difference with a conventional acquisition is essential.
In a conventional acquisition, a buyer negotiates with a seller the price, guarantees and conditions for carrying out the transaction.
In a transfer plan, the process is judicial.
The candidate submits an offer. This is examined as part of the procedure and ultimately the court decides which takeover plan it accepts.
His choice is not based solely on the price offered. The Commercial Code requires him, in particular, to seek the offer that will most sustainably ensure the employment associated with the transferred assets, the payment of creditors, and that presents the best guarantees of performance.
Taking over the business does not usually mean buying the company
This is a key distinction for understanding the benefits of a takeover within the framework of a divestment plan.
The buyer does not usually acquire the shares or equity interests of the company in difficulty.
He proposes to resume a scope of activity.
This may include, in particular:
- a business;
- machines and equipment;
- stocks;
- trademarks and other intellectual property rights;
- certain contracts necessary for the activity;
- the lease of the premises;
- and all or part of the employees attached to the business taken over.
The exact scope depends on the project presented and what the court ultimately decides to cede.
Before taking over a struggling company, the candidate must therefore precisely determine the scope they need.
This technique has a considerable advantage: the buyer does not, in principle, take over all of the previous debts of the company in difficulty.
However, we must avoid an overly simplistic presentation according to which a court-ordered takeover would systematically allow us to "take over the assets without the debts".
This principle does have exceptions and nuances that a candidate must absolutely identify before pricing their offer.
Financing of acquired assets: which debts can be transferred?
Financing is one of the main points of vigilance when taking over a struggling company under economically viable conditions.
Some assets can be taken over with associated financial charges.
When a sale includes an asset financed by a loan secured by a specific security interest in that asset, ArticleL. 642-12 of the French Commercial Code governs, under the conditions it sets forth, the transfer of the burden of that security interest to the buyer. The buyer must then pay the remaining installments due from the date of the transfer of ownership, unless a different agreement has been reached with the creditor concerned.
This rule can significantly alter the economics of an offer.
A machine, equipment or building included in the scope of the takeover should therefore not be valued solely on the basis of the fraction of the sale price allocated to it.
The candidate must also research:
- how this asset was financed;
- What security does this financing guarantee?
- what payments will remain due after the transfer;
- and what financial burden he will actually have to bear.
The economic cost of a taken-over asset can therefore be significantly higher than the amount attributed to it in the offered price.
Commercial lease in judicial liquidation: beware of reverse joint liability
Another particular risk can arise when a commercial lease is transferred as part of a judicial liquidation.
ArticleL. 641-12 of the Commercial Code provides that the liquidator may assign the lease under the conditions provided for in the contract with the rights and obligations attached thereto.
The text renders ineffective any clause that would impose joint and several obligations on the transferor with the transferee. However, particular attention should be paid to the opposite scenario: that of a clause imposing joint and several liability on the transferee for sums owed by the previous tenant.
This clause, sometimes referred to as a "reverse solidarity clause", may, depending on its wording and the circumstances of the transfer, expose the buyer to a claim from the landlord relating to previous rents or charges.
The actual cost of taking over the lease can then be much higher than that which results from the price offered for the business alone.
Therefore, reviewing the commercial lease is an essential part of the preliminary due diligence. Before submitting their offer, candidates must determine whether the contract contains such a clause and assess the potential rental liabilities they might face.
These two examples illustrate an essential rule:
resuming an activity without acquiring the shares of the debtor company does not necessarily mean taking over assets completely free of any charge or risk related to previous liabilities.
The analysis must be conducted asset by asset, financing by financing and contract by contract.
Where can I find a struggling business to take over?
The search for buyers is usually advertised.
Opportunities can be identified in particular on platforms dedicated to companies in difficulty, on the websites of administrators and judicial representatives or through professionals who regularly intervene in collective procedures.
The announcements usually include some essential information: sector of activity, location, turnover, workforce and deadline for submitting offers.
But the announcement is only the starting point.
When an opportunity seems interesting, the candidate should quickly request access to the file.
A confidentiality agreement is usually sent to him. Once this is signed, he can access a presentation file and, depending on the importance and organization of the file, a data room.
This is when the work of analysis truly begins.
How to analyze a struggling company before taking it over?
The candidate will generally only have a few weeks, sometimes less, to decide whether they wish to submit a bid.
Therefore, he may not necessarily be able to conduct the full audits that the buyer of a healthy company would carry out.
The priority is to identify the few questions that could determine the viability of the project.
Why is the company in difficulty?
That's the first question to solve.
A company can be in receivership even though its business remains economically viable: cash flow crisis, excessive debt, poorly financed investment, loss of an important customer, exceptional litigation or difficulties related to its former financial structure.
In other situations, the collective procedure reveals a much deeper problem: persistently loss-making activity, insufficient selling prices, disappearance of the market, unsuitable industrial equipment or an obsolete business model.
The resumption obviously does not have the same meaning in both situations.
One question can summarize the analysis:
Would the business become profitable again if it were freed from the burden of its past difficulties?
What elements should be checked first?
Anyone wishing to take over a struggling company must have secured the essential elements of their project before submitting their offer.
Depending on the activity, the analysis should focus in particular on:
- the actually recurring revenue;
- the margins;
- the main clients and their concentration;
- the order book;
- strategic suppliers;
- the commercial lease and its specific clauses;
- the contracts essential for operation;
- equipment and their ownership;
- the financing arrangements for essential assets and the corresponding guarantees;
- employees and key skills;
- stocks;
- trademarks, software, domain names and other intangible rights;
- administrative authorizations;
- the necessary investments;
- and the cash flow essential for restarting.
One of the most useful exercises is also to establish a list of missing information.
Taking over a case often means accepting a degree of uncertainty. But what kind of uncertainty are we willing to accept?.
For each important piece of information that cannot be obtained, the candidate should ask themselves:
"What happens if the worst-case scenario comes true?"
If this assumption is sufficient to compromise the financing or profitability of the operation, the risk must be addressed before the offer is submitted.
How much does it really cost to take over a struggling company?
The sale price must be distinguished from the overall cost of the takeover .
This is a fundamental difference.
A business can be taken over for 50,000 euros and require 500,000 euros in funding in the following months.
For what ?
Because after the judgment, funding will be required, among other things:
- the sale price;
- the salaries and related charges of the employees taken over;
- purchases of goods;
- the replenishment of certain stocks;
- suppliers who may require cash payments;
- the working capital requirement;
- investments that had been deferred;
- any necessary work or upgrades to meet standards;
- losses that may still be recorded during the restart period;
- any financing deadlines attached to certain assets being taken over;
- and, depending on the contracts concerned, certain specific charges that may be imposed on the buyer.
The price offered to the court is therefore sometimes only a small part of the actual financial need.
A candidate who devotes all their resources to increasing their buyback price may thus weaken their own project.
The right question, therefore, is not simply:
"How much can I offer?"
She is :
"What will be the total economic cost of the takeover and how much money will I need to get the business up and running the next day?"
This analysis of the overall financial need is one of the keys to the success of a takeover at the bar.
How to prepare a takeover bid?
Thetakeover offer is the central document in the process.
It must comply with the requirements of the Commercial Code and in particular specify the scope of the assets, rights and contracts taken over, the activity and financing forecasts, the price and its terms of payment, the jobs concerned, the guarantees of execution and the duration of the commitments made.
But a legally complete offer is not necessarily a good offer.
The candidate must present a genuine takeover plan.
An explanation is needed:
- who is the buyer;
- what is his experience;
- why he wants to resume this activity;
- how this may be integrated into its existing activities;
- what area he intends to cover;
- what jobs he will maintain;
- how the project will be financed;
- and how the company will be able to operate after the sale.
The offer must be consistent.
A candidate cannot, for example, announce strong business growth while eliminating positions essential to achieving it.
Similarly, it is not enough to announce that funding will be obtained: its availability and credibility are important elements of the case.
How much does a court-ordered takeover actually cost?
The financial structure of the offer must include all costs associated with the scope.
The candidate must in particular verify the financing and guarantees relating to the assets he is asking to take over as well as the stipulations of essential contracts, in particular the lease.
Therefore, a distinction must be made:
the price offered for the sale
And
the overall economic cost of the scope taken over.
This distinction is essential to avoid underestimating the necessary funding.
Which contracts need to be renewed?
This issue needs to be addressed very early on.
The buyer may need the commercial lease, a finance lease on certain machines, an IT contract, a license or a supply contract essential to the operation.
Certain contracts necessary for the continuation of business may be judicially transferred under the conditions provided for by the Commercial Code.
But it would be dangerous to conclude that any business relationship desired by the candidate will be automatically transferred.
Resuming business activity does not necessarily imply the continuation of all commercial relationships previously maintained by the debtor.
Before submitting its offer, the buyer must therefore establish a true map of the contracts :
essential contracts / useful contracts / contracts whose continuation is not desired.
For essential contracts, the analysis should not stop at the question of whether they can be transferred.
It is also necessary to study their economic conditions and clauses that may have effects after the recovery.
The commercial lease is a good illustration of this.
A mistake on a single key contract can jeopardize the entire economic model of the recovery.
Can one withdraw or modify their takeover offer?
This is one of the most important features of the procedure.
A takeover bid is not a simple expression of interest.
Once filed, it is a binding document for its author and cannot, in principle, be freely withdrawn or modified. However, it can be improved under the conditions stipulated by the procedure.
The candidate must therefore have completed the bulk of their work before submitting the offer.
Financing, scope, employees, contracts, investments, guarantees and charges attached to the acquired assets: the main assumptions must be sufficiently secured.
Submitting a bid solely to "stay in the game" with the intention of deciding later is a particularly risky strategy.
Can you improve your offer before the hearing?
Yes, but this possibility must be used with caution.
When there are several candidates, the buyer may be encouraged to improve their offer: higher price, taking on additional employees, expanded scope or strengthened guarantees.
There is then a fairly classic risk: trying so hard to get the company that you end up compromising the conditions that would allow you to turn it around.
If taking on five additional employees calls into question the business plan, this improvement may not be one at all.
If a significant price increase deprives the company of the cash needed to restart, the bidder risks winning the procedure and losing the operation economically.
The project must therefore remain coherent until the hearing.
The goal is not to win the competition between buyers at all costs. It is to take over a business under conditions that will then allow it to become viable.
How does the court choose the buyer?
Contrary to popular belief, the court does not necessarily choose the offer with the highest price.
It examines, in particular, the sustainable maintenance of employment, the payment of creditors and the performance guarantees presented by each candidate.
The quality of the project is therefore essential.
An industrialist who knows the business perfectly, has the necessary financial resources and presents a coherent project can have particularly strong arguments, even if another candidate offers a slightly higher price.
The hearing allows the candidate to explain their project and, if necessary, answer questions.
But a successful audience will not compensate for an insufficiently prepared offer.
What happens after the judgment terminating the transfer plan?
The judgment designates the buyer and sets out the main elements of the transfer.
But contrary to what one might imagine, the recovery is not over.
The deeds of transfer still need to be prepared and formalized.
In the meantime, the management of the transferred company may, under the conditions provided for by the Commercial Code, be entrusted to the buyer.
The switchover can therefore be extremely rapid.
And it is often at this moment that the most difficult part of the project begins.
We must immediately:
- get in touch with the teams;
- reassure the employees;
- secure suppliers;
- preserve customers;
- organize bank accounts;
- put insurance policies in place;
- to ensure payroll;
- secure computer systems;
- organize supplies;
- have the necessary cash flow;
- and explain to all partners that the activity continues.
The candidate who is waiting for the verdict to reflect on these questions has already fallen behind.
A takeover at the bar must therefore include not only a business plan, but also a genuine operational takeover plan.
Taking over a struggling company can be a real opportunity, provided that the conditions for its restart are anticipated from the outset.
Taking over a struggling company: the checklist before submitting a bid
Before submitting a takeover bid, ten questions should therefore be asked:
1. What procedure is underway and what is its timeline?
2. What is the true origin of the company's difficulties?
3. What scope of activity do I actually need to take over?
4. What assets and contracts are essential to this scope?
5. What financing and collateral are attached to the acquired assets?
6. Can the lease or other contracts impose any special obligations on the new tenant?
7. Which employees and skills must absolutely be retained ?
8. What is the total financial requirement, beyond just the sale price?
9. Are the commitments contained in my offer truly sustainable?
10. Am I capable of taking command if the court chooses me?
If the answer to this last question is negative, the offer is probably premature.
FAQ – How to take over a struggling business
Is it possible to take over a company that is in receivership?
Yes. When a solution to continue the business under the existing conditions does not appear possible, a total or partial sale of the business can be organised within the framework of the judicial reorganisation.
Is it possible to take over a company that is in liquidation?
Yes. A sale of the business may occur, in particular, when a temporary continuation of operations allows time to find a buyer. Assets may also be sold separately as part of the liquidation process.
Are the company's debts assumed during a court-ordered takeover?
In principle, no.
In a sale plan, the buyer generally acquires a set of assets and activities, not the shares of the debtor company. Therefore, in principle, they are not liable for all of its debts.
However, this rule has important exceptions and limitations.
The burden of repayments on certain loans secured by a special security interest in an asset taken over may in particular be transferred to the assignee under the conditions of Article L. 642-12 of the Commercial Code.
Similarly, when a commercial lease is transferred in judicial liquidation, particular attention must be paid to its stipulations and in particular to any possible reverse joint and several liability clause which may place certain prior rental debts on the transferee.
Therefore, any general statement that a court-ordered takeover would necessarily be a "debt-free" takeover must be avoided.
What happens to the commercial lease during a court-ordered takeover?
The lease can be one of the essential contracts for the continuation of the business.
Its transfer and its consequences depend on the context of the sale. In the case of judicial liquidation in particular, the candidate must carefully examine the lease clauses before submitting their offer, as certain stipulations may have a significant financial impact on the takeover.
Is it mandatory to take on all employees?
No. The offer determines, in particular, the level and prospects of employment associated with the takeover project. The social consequences are then addressed within the framework of the procedure and the plan established by the court.
Is the highest bid always accepted?
No. Price is only one of the factors considered. The court also takes into account job security, payment of creditors, and performance guarantees offered by the candidate.
How long does it take to take over a company from the helm?
There is no single timeframe. In practice, the timeframe can be particularly short: the candidate may only have a few weeks between accessing the file and submitting their offer.
It is therefore necessary to be able to quickly mobilize one's teams, advisors and funding.
Why seek professional assistance in preparing a takeover bid?
A takeover bid involves significant legal, financial, social and operational commitments.
The support helps in particular to define the scope of the takeover, analyze the assets, financing, guarantees and contracts concerned, secure the drafting of the offer and anticipate the conditions of the effective takeover if the court accepts the project.
Anticipating the recovery rather than simply preparing the supply
Taking over a business can allow you to acquire a business under particularly attractive conditions.
But its success rarely depends solely on the prize won.
It depends on the candidate's ability to quickly understand the company, identify what can be saved, measure the risks that he cannot fully audit, define a coherent scope and retain sufficient financial resources to restart operations.
We must also avoid an overly simplistic idea: taking over an activity without taking over the company does not necessarily mean taking over assets completely free of the charges attached to them or of any risk linked to previous liabilities.
The analysis of financing, guarantees, leases and other essential contracts must therefore fully participate in the construction of the offer and the price.
A takeover bid must finally be prepared with consideration already given to what will happen if it is accepted.
Because the real issue is not just being appointed by the court.
It's about being ready to take over the business the very next day.
