Yes, you can sell an insolvent business—but not in the same way you’d sell a healthy company. When a business can’t pay its debts, the law requires that creditor interests come first. That means any sale must be handled by a licensed insolvency practitioner and carried out through a formal process such as administration or liquidation.
Selling through administration
One of the main ways to sell an insolvent business is through administration. Once an administrator (who must be a licensed insolvency practitioner) is appointed, they take over control of the company.
What usually happens is that the business, or parts of it, are sold under the supervision of an insolvency practitioner. The aim is to realise as much value as possible from assets, contracts or goodwill so that creditors get a better return than they would if the business just closed through liquidation.
If there’s a buyer interested, the administrator may complete what’s known as a pre-pack sale. In a pre-pack, the terms of the sale are agreed in advance and completed immediately after the company enters administration. This allows for a smooth transition, often keeping contracts, staff and trading activity intact.
Administration is a tightly regulated process designed to maximise value for creditors while giving the business a chance of survival under new ownership.
Selling assets in liquidation
If administration isn’t viable, a sale might still happen through liquidation. In a Creditors’ Voluntary Liquidation (CVL), the insolvency practitioner will close the company but can sell its assets. These are anything from stock and equipment to intellectual property and the trading name itself.
Those assets may be bought by a competitor, an investor or even the existing directors, provided the purchase is at fair market value. This is sometimes referred to as phoenixing, where a new company rises from the old. Done properly, it’s a legal way to preserve the useful parts of a failed business. Done improperly, it risks breaching insolvency law.
Can directors buy back their own company?
Directors can buy back assets from their insolvent business. But the rules are strict. The price must reflect independent market value, the process must be transparent and the transaction has to be demonstrably in creditors’ best interests.
An insolvency practitioner will manage the sale to make sure it’s above board. If directors try to transfer assets ‘on the cheap’ or without proper process, they risk allegations of selling transactions at undervalue or even fraud.
The risks of selling an insolvent business
Selling an insolvent business is only safe if it’s done correctly. Directors who try to arrange sales themselves or act without professional oversight face serious risks:
- Sales at less than fair value can be overturned by the court
- Preferential treatment of certain creditors can be clawed back
- Continuing to trade while insolvent can trigger personal liability for company debts
- Misconduct can lead to director’s disqualification for up to 15 years
These are not risks worth taking. Working with a licensed insolvency practitioner protects you and ensures the process stands up to scrutiny.
When a sale isn’t possible
Not every insolvent company has value and therefore can be sold. If there are no assets worth buying, no contracts that carry value and no goodwill in the market, then liquidation without a sale is usually the only route.
While that may sound final, liquidation can be a constructive step. It draws a clear line under the debts, relieves you of creditor pressure, and lets you move forward without the risk of ongoing liability.
Key takeaways on selling an insolvent business
- Selling is possible but only through administration or liquidation
- The process must always prioritise creditors, not directors
- Directors can buy back assets, but only through a fair and transparent process
- Mishandled sales risk personal liability and disqualification
- If a sale isn’t viable, liquidation provides a clean, legal closure
Speak to an expert before you decide
If you’re wondering whether your insolvent business can be sold, the safest step is to seek advice before taking action. A licensed insolvency practitioner will tell you honestly whether there’s value in a sale, or whether liquidation is the better option. Acting early gives you the most control, and protects you from risks that could follow you personally.
Get in touch with our team of experts today for free, confidential, no-obligation advice.
