Regalian’s recently announced rights issue to take advantage of opportunities in a recession suggests that the vultures are beginning to eye the meatier carcasses among their fallen rivals (see “Finance”).
For the employees and shareholders of Egerton Trust and Sheraton Securities insolvency is grim. However, for the “vultures” (or “woodpeckers”!) it represents an opportunity to acquire properties or sites – at a keen price.
Last year Cantors purchased some 24 stores from the administrative receivers of retailer Lowndes Queensway. The purchase price was under £2m. Press comment at the time suggested that the stores would reopen under the new name in a matter of weeks. For developers the prospect of acquiring a share in a joint venture from the receivers of one of the co-venturers may be particularly attractive. Regrettably, for those hunting for a “cut-price” property deal, buying “bust” companies or sites from a receiver is not without its pitfalls. Within days of kicking off negotiations, a purchaser picking at the carcass of a former rival will get his first surprise.
Dealing with a receiver, or for that matter any insolvency practitioner, is not the same as dealing with a vendor of a developing business. Deals are usually struck after frantic negotiations with a purchaser’s own bankers, lawyers, accountants and, of course, the receiver or another insolvency practitioner. (For a brief explanation of administrative receivership, administration and liquidation, see tables.) Speed is usually of the essence to secure the acquisition – sometimes in competition with a number of other bidders.
Negotiating tactics and the contents of agreements will be very different from those used in normal property deals. For example, the receiver will have been only briefly involved with the business. Thus his knowledge of the properties to be sold may be very limited. This has important consequences for a purchaser:
- Independent inquiries and analysis of the assets on offer must be made.
- When buying sites a potential purchaser must make his investigations into the planning position.
- Usually the receiver is unwilling to give any assurance that the company which is selling owns the property — so it is really a case of caveat emptor! The most that purchasers will get is a covenant that the receivers themselves have not done anything to encumber the property. Receivers will, invariably, not permit the company in receivership to give the covenants as to title which a purchaser would expect to see in a normal property deal. The receiver will not know the historical position. Besides, he will not want to add to the company’s liabilities.
- Land may be sold subject to documents that a purchaser may not have even seen. Furthermore, replies to preliminary inquiries will be limited to facts within the receiver’s actual knowledge.
Buying a business which was carried out from several leasehold premises can pose a number of problems. Department stores such as Lewis’s or retail multiples are just two examples. A buyer will be expected to exchange contracts on the leasehold properties at the same time as he completes the purchase of the business of the multiple. A receiver in a strong negotiating position will require the buyer to pay the bulk of the purchase price for the properties from which the business is carried on “up front”, on exchange of contracts for the properties – as opposed to at completion. Thus the buyer is exposed to the risk that one or two landlords may refuse to grant consent to the assignment. If the landlord refuses to give his consent the buyer will have paid out for leasehold premises from which he may not be able to operate.
Other potential liabilities will include arrears of rent and dilapidations. A refusal by a purchaser to pay for arrears of rent of the former occupier could lead to a landlord exercising his right to distrain over assets at the property belonging to the purchaser.
The insolvency practitioner will not be able to offer an exclusive negotiating period to give the purchaser a clear run as would a seller in a non-insolvency sale. There may be rival bidders.
The receiver is under an obligation to consider all offers that may be available at the time when he decides to sell as he must secure the best price which he can reasonably obtain. However, he may need to sell property because of cash-flow problems. This factor makes speed essential on the part of the purchaser and his advisers. For example, within two weeks of the appointment of the administrative receivers of Rush & Tompkins, the bulk of the company’s regional offices and construction contracts had been sold.
Many believe that the best gamekeepers are expoachers. Employing another firm of lawyers with wide insolvency experience is often found to be helpful in advising on the acquisition and may save remorse later as the deal turns sour.
With some 2,000 or more companies going into liquidation, receivership or administration in recent months – including property-based companies such as PointWest Developments, J M Jones, Leading Leisure and A J Dunning – more acquisitions by institutions and developers will be from receivers and other insolvency practitioners. The draw for a purchaser is price. However, it is not without risks – particularly to the uninitiated.
Andrew Crawford and Shashi Rajani are partners and Eva Duaralski is assistant solicitor with City firm Cameron Markby Hewitt.
