Blog

Is a liquidator or administrator that sells an insolvent business using a process that is materially different from that currently used by business brokers and corporate advisers breaching their fiduciary obligations to the company?

Selling an insolvent business has additional challenges to other business sales including time pressures, quantity and quality of available information, knowledge of the business, warranty and restraint issues.  These risks are factored into the price the liquidator would expect to get for the business, not the process that they should adopt to get the best outcome.  The time pressures mean that the liquidator should go hard with promotion early with multiple sources of advertising and search.

In our view many insolvency firms fall short in advertising, marketing and systems for selling insolvent businesses to the potential detriment of the company.

I am amazed at how little the process of selling an insolvent business has progressed since I left the insolvency profession in the 1980s.  The approach then was to put an advertisement in Tuesday’s Australian Financial Review and Saturday’s Sydney Morning Herald and wait for the buyers to come.  It appears that many liquidators have ignored the internet age, proactive search and modern systems.

If you are one of the few that actually read the paper version of the AFR on a Tuesday, most of the advertisements for business for sale in the Enterprise section are for the sale of insolvent businesses.  The business for sale section of the Saturday Sydney Morning Herald has gone from 3-4 pages to half a page.  If this is the best approach why don’t business brokers and corporate advisors also use it more often?  For business brokers the cost of a single advertisement is rather expensive and corporate advisers tend to use direct buyer search rather than advertising for their medium sized businesses.

Business brokers advertise the smaller business via the various internet business listing sites as well as their own databases of potential buyers.  We list our smaller business for sale on around 10 different sites.

Part of the problem for insolvency firms is that they view the sale of an insolvent business as a project, yet those of us in the business of selling the businesses see it as a process.  We continually seek to improve the efficiency and effectiveness of our process adding value through better business profiles, search of potential buyers, maintaining a database of buyers and the use of virtual data rooms for efficiency and security.

The hourly based remuneration structure of insolvency firms works against innovation as efficiency reduces billable hours.  Our remuneration is largely based on the successful sale of the business, so we are focussed on getting a sale in the most efficient way.

The other week I saw a liquidator advertise a business for sale where they wanted a large non-refundable deposit before they would release an information memorandum.  Are you kidding me?  Imagine if a business broker or corporate advisor did that, they would be out of business in a flash.  I do not know the background, but I assume that the liquidator wanted to charge a fee to seek to recover the costs of preparing the information memorandum and/or to reduce the number of potential buyers to those they deemed to be serious.  I thought when you listed an asset for sale you wanted as many people as sensible to review the opportunity.  Deal with your own filtering processes not the cutting down the number of potential buyers.

When you list a business for sale many of the people that want to review it fit into one of the dreamer, perpetual looker or bottom trawler categories.  We are used to this situation as we deal with it daily and have ways of managing and filtering to get to the serious buyers.

We consider that insolvency firms should use a modern approach or get business sale professionals to undertake the task for them.

Endeavour Capital has developed a niche 3 step process of assisting insolvency practitioners to sell distressed businesses.  As we are in the business of selling businesses we have access to multiple business listing sites, a database of investors as well as a search based marketing approach.  Our systems and approach are designed to get insolvent businesses sold fast.

 

Peter Wallace

Endeavour Capital

Sydney

 

 

Business sales  |  Business valuations  |  Corporate Advisory  |  Succession and Exit planning