Questions & Answers

Q: I am on the verge of retiring and have recently received an acceptable offer from a supplier to buy my business which I run through a limited company. What do I do now and what is involved?

A: First you should clarify the full terms of the offer and whether it is to buy the business from the company (in which case the company will receive the purchase price) which is known as an asset purchase, or the shares in the company from you (in which case you will receive the purchase price), which is known as a share purchase. As the difference in terms of your net return can be significant, you should talk to your accountant beforehand. For a seller it is generally better and more tax efficient to sell the shares in the company. A purchaser buying shares will acquire all the assets and liabilities of the company. A purchaser buying a business can cherry pick the assets it requires and may leave behind certain liabilities.
A purchaser will normally require information regarding your business. This is known as the Due Diligence process and will involve the purchaser providing you with a set of pre contract enquiries about different aspects of your business. Before you start releasing information to the purchaser you should ensure that there is a confidentiality agreement in place. If the purchaser is buying the shares then, as they will be taking all the potential liabilities, the pre contract enquiries will be extensive.
The purchaser’s solicitors will usually prepare the sale agreement which will contain warranties (statements of fact by you regarding the company upon which the purchaser can sue you if they are incorrect) which can be qualified by you in your disclosure letter to the extent you know the warranties are untrue.
The process of selling a company can be very stressful and complicated. You should seek advice at the earliest opportunity from a lawyer experienced in dealing with such transactions. To neglect to do so can, and does, result in many people failing to realise what can be a lifetime’s work and effort.

Q: I run a small and successful family business and recently received a court claim in the post. The claim says that I owe money for goods ordered from one of my suppliers, amounting to several thousand pounds. I did order the goods, but the fact is that when they arrived they were of such poor quality that I refused to accept the delivery. I assume that I am entitled to ignore the court claim, as I sent the goods straight back to the supplier?

A: Although you may have a perfectly good reason for not paying the supplier, you should definitely not ignore the claim. If you do not respond at all, the supplier will be entitled to ask the court for something called ‘Judgement in Default’. This essentially means that the court will make a decision in favour of the claimant (the person making the claim, in this case your supplier). If that happens you will be liable to pay the amount which is claimed and probably something extra for legal fees. In addition, the Judgement in Default would be officially recorded by the local court and also at a central register in London. This can have an adverse impact on you and your business, as anyone can search the register to check the credit-worthiness of an individual or business. Credit reference agencies such as Experian and Equifax do this regularly when deciding on credit ratings.
You would be far better off responding to the claim and setting out your reasons for non-payment. It may even be possible to enter something called a counterclaim, where you actually make a claim of your own against the claimant. There are many ways to deal with a court claim, but ignoring it is the worst possible response.