You may have noticed the increased number of assets for sale by administrators of businesses.  The low prices asked for these assets can be tempting, but before snapping up a bargain you should be aware of the potential risks.
There is usually a lack of guarantees and warranties with administration sales and it can be tricky to carry out the recommended due diligence.  Ideally you will want as much information about an asset as possible before the purchase proceeds. 
The administrator, who acts as an agent for the insolvent business, will most likely exclude personal liability for any errors or omissions and will not give any guarantees or warranties for the assets. The administrators seldom know much about the assets and the directors and other management may not be co-operative.   You should be aware that the company directors no longer have the power to commit the company so all dealings should be with the administrator, unless this has been specifically authorised by the administrator.
The asset, whilst apparently being for sale, may not actually be owned wholly by the business.  It may be leased or may have encumbrances on it such as a hire purchase contract, or a ‘retention of title’ clause which could result in it being repossessed after you have paid for it.  Try to establish exactly what you are paying for and if, as is often the case with administration sales, the information is not available, make sure the price reflects any risks you will take on with the asset.
When purchasing property, often vacant possession will not be guaranteed and you may need to factor in the cost of clearance.   After the sale, you will also take on liabilities for planning breaches, tax liabilities on the property and environmental contamination issues.   On a practical point, the Land Registry and third party funders will want evidence that the administrator was properly appointed and this should be obtained before the sale proceeds.
Normally speed is important and the administrator will wish to complete the transaction very quickly in order to pay the creditors of the business.  Therefore you will normally be in a better bargaining position if you attend the sale with ready funds.  It is advisable to obtain legal and financial advice as early as possible so that everyone is ready to work with you at the moment you decide to proceed. 
Whilst buying wisely from administrators can be cost-effective, the added risk means you should take early advice to ensure a good deal and proceed with care. 
We would be happy to help you with any aspect of purchasing assets from a business in administration.
For further information please email Charles Agar or call 01925 230000.

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.